WASHINGTON A U.S. federal court judge has upheld a new rule that would force manufacturers to disclose whether their products contain "conflict minerals" from the Democratic Republic of Congo, a country known for human rights abuses.
The decision by Judge Robert Wilkins of the U.S. District Court for the District of Columbia marks a rare victory for the Securities and Exchange Commission, which has suffered a losing streak in recent years over legal challenges to its rules.
The U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers had challenged the conflict minerals rule, saying it was too costly and violated companies' First Amendment free speech rights.
But in his order issued late Tuesday afternoon, Wilkins rejected both of those arguments.
"Finding no problems with the SEC's rulemaking and disagreeing that the conflict minerals disclosure scheme transgresses the First Amendment, the court concludes that plaintiffs' claims lack merit," wrote Wilkins, who was appointed by President Barack Obama and was recently nominated for the U.S. appeals court in Washington.
"We are pleased the court found that the Commission acted reasonably in drafting this Congressionally-mandated rule and conducted its economic analysis in an appropriate manner," said SEC spokesman Kevin Callahan.
In a joint statement released by the U.S. Chamber, the trade groups said they were still reviewing the court's decision.
"We continue to believe this rule, while well intentioned, is unsupported by the agency's own record," they said.
The SEC's conflict minerals rule is one of the more obscure provisions of the 2010 Dodd-Frank Wall Street reform law.
Championed by human rights groups, it requires publicly traded manufacturers to disclose whether any tantalum, tin, gold or tungsten in their products may have originated from the conflict-ridden Democratic Republic of Congo.
But critics say it will be nearly impossible to track minuscule amounts of such minerals and will also unfairly tarnish companies' reputations.
Companies had tried to convince the SEC to exempt them from having to comply with the disclosures if the products only contained a "de minimis" amount of the minerals.
The SEC countered that it was bound by a mandate from Congress to adopt the rule without exceptions.
Wilkins agreed with the SEC's position.
"The SEC rightly maintains that its role was not to 'second-guess' Congress's judgment as to the benefits of disclosure, but to, instead, promulgate a rule that would promote the benefits Congress identified and that would hew closely to that congressional command," he said.
The ruling by Wilkins in the SEC's favor comes just a few weeks after the agency lost another legal battle over a companion humanitarian Dodd-Frank rule that the Chamber and others had also challenged.
In early July, a different federal district judge tossed out the SEC's "extractive resources" rule requiring oil, gas and mining companies to disclose payments to foreign governments.
Both the lawsuits challenging the conflict minerals and extractive resources rules made similar arguments, saying the SEC had failed to weigh the costs and that the rules trampled on free speech rights.
In the extractive resources ruling, the judge ruled that the SEC did not properly interpret the law and failed to consider industry requests for relief.
(Reporting by Sarah N. Lynch; Editing by Lisa Von Ahn)