The WSJ reports that:
A federal appeals court, citing free-speech concerns, partly overturned a controversial rule requiring publicly traded U.S. companies to disclose whether their goods contain certain minerals whose sales result in profits that fund violent armed groups in Central Africa.
The U.S. Court of Appeals for the District of Columbia Circuit said the Securities and Exchange Commission's rule violates the First Amendment by "compelling" companies to disclose whether their products are "ethically tainted, even if they only indirectly finance armed groups."
I've been a critic of the rule on grounds that it was over burdensome, but did not see a successful First Amendment claim coming. It is almost unheard of for the SEC to have a rule struck down on free speech grounds. Indeed, I often tell my students that there is a little-known codicil to the first amendment that allows the SEC to regulate speech however it wants.
Back in January, by way of contrast, Frank Murray of Foley & Lardner predicted this might happen:
While much of the focus within the business community has been on the administrative burdens of tracing the origin of conflict minerals (tin, tantalum, tungsten and gold) used in a company’s products, the most spirited questioning from the bench during the recent oral argument related to whether the rule infringes companies’ freedom of speech. The business groups challenging the SEC’s rule have alleged that the conflict minerals disclosure regime represents government-compelled speech in contravention of the First Amendment. They have contended that the conflict minerals regime unconstitutionally compels companies to make an ideologically-driven, rather than fact-based, statement about their own products – namely, that the products “have not been found to be conflict-free.” This type of speech, they contend, forces companies to stigmatize themselves and denounce their own products based on information that is speculative, rather than fact-based. The business groups also object to the requirement that companies post conflict minerals reports and information on their corporate websites, contending during oral argument that those websites “are our space.”
Apparently, the appeals court ended up agreeing at least in part (I haven't seen the opinion yet).
Going even further back Thomas Armstrong and Beth J. Kushner argued in a WLF Legal Backgrounder that the rule was constitutionally suspect:
Because Section 1502 forces publicly-traded corporations to speak publicly on matters having nothing to do with the safety of their products or the economics of investing in their stock but, rather, compels those companies to speak to the general public on matters of public interest, the authors submit that Section 1502 likely violates the First Amendment. This is particularly so with respect to Section 1502’s requirement that publicly-traded corporations disclose information to consumers on company websites, in addition to providing conflict minerals reports to the SEC. ...
Because the purpose of Section 1502 has nothing to do with preventing consumer deception, the required information proposes no commercial transaction with the public, the compelled disclosure does not relate solely to the interests of the speaker, and the disclosure on company websites is unrelated to stock ownership in the company or to marketing the company’s securities, it would seem apparent that the compelled disclosures are not commercial speech. Rather, as evidenced by the declared purpose of Section 1502 – i.e., to reduce or eliminate the humanitarian crisis in the DRC by depriving armed groups of the economic benefits of commercial activity involving conflict minerals – the information relates to matters of significant public concern. Speech concerning such a matter of public importance, or the right not to speak on this subject, likely enjoys full First Amendment protection. ...
Go read the whole thing. It's succinct and helpful.
Update: Copy of the opinion available here.
