Original Judgment In Conflict Minerals Case Reaffirmed

Those public companies that must comply with the Securities and Exchange Commission's Conflict Minerals Rule (Rule)1 should be aware that the three judge panel of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Court of Appeals) that in April 2014 issued the original appellate decision (Original Decision) in National Association of Manufacturers v. SEC (NAM),2 a case that poses a challenge to the Rule's validity, recently reaffirmed the Original Decision upon rehearing (Rehearing Decision and, together with the Original Decision, the Decisions).

Rehearing Decision

In the Rehearing Decision,3 the court reaffirmed its Original Decision that parts of Section 13(p) of the Exchange Act4 and the Rule:

"violate the First Amendment to the extent the statute and rule require regulated entities to report to the [SEC] and to state on their website that any of their products have 'not been found to be 'DRC conflict free.''"5

The SEC and Amnesty International had petitioned for a rehearing in NAM after the D.C. Court of Appeals, sitting en banc, issued its decision in American Meat Institute v. U.S. Department of Agriculture (AMI),6 another case involving the First Amendment's application. The SEC and Amnesty International had hoped the court would apply the First Amendment analysis of AMI in its rehearing of NAM and reverse the Original Decision. It should not come as a surprise if the SEC now petitions for a rehearing of the Decisions by the D.C. Court of Appeals, sitting en banc, which may well be friendlier to the SEC's position than the three judge panel has been. The SEC could also petition the U.S. Supreme Court for certiorari. If the SEC does not petition for another rehearing or certiorari, the Decisions will become final and the case will go back to the district court for further action.

In the meantime, the stay of those parts of the Rule affected by the Original Decision that was issued by the SEC following the Original Decision (Stay)7 will remain in effect. However, the Decisions and the Stay do not affect the core elements of the Rule, including the supply chain due diligence and reporting requirements, and issuers must continue to comply with those requirements. Regardless of the direction in which NAM goes, the uncertainty regarding the Rule and how issuers should best comply with it will continue for the near future and possibly past the next Form SD filing deadline on May 31, 2016.

Practical Considerations

Issuers...