The United States Court of Appeals for the District of Columbia issued its decision on the conflict minerals rule after a rehearing. In National Association of Manufacturers, et al, v. SEC, the Court adhered to its original judgment that the SEC’s conflict minerals rule violated the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have not been found to be DRC conflict free.

The rehearing was granted as a subsequent decision in American Meat Institute overruled the portion of the original NAM decision holding that the analysis in Zauderer was confined to disclosures designed to prevent the deception of consumers. It makes a difference because Zauderer provides for a loose constitutional review of whether a law violated the First Amendment rights of those subject to the government’s edicts. But the question remained as to whether Zauderer applied at all. The Court said Zauderer did not apply because that case only held that an advertiser’s “constitutionally protected interest in not providing any particular factual information in his advertising is minimal.” And everyone knows the conflict mineral rules are not advertising.

So to make a long story short, Zauderer did not apply but for a different reason. The Court did not see it necessary to repeat its further reasoning in the case, but added an alternative ground for its decision, digging the hole deeper for the SEC and making the ultimate escape possibly more difficult.

Under the First Amendment, in commercial speech cases the government cannot rest on “speculation or conjecture.” But according to the Court, “that is exactly what the government is doing here. Before passing the statute, Congress held no hearings on the likely impact of § 1502. The SEC points to hearings Congress held on prior bills addressing the conflict in the DRC, but those hearings did not address the statutory provisions at issue in this case. When Congress held hearings after § 1502’s enactment, the testimony went both ways – some suggested the rule would alleviate the conflict, while others suggested it had “had a significant adverse effect on innocent bystanders in the DRC.”

The Court also noted that “other post-hoc evidence throws further doubt on whether the conflict minerals rule either alleviates or aggravates the stated problem. As NAM points out on rehearing, the conflict minerals law may have backfired. Because of the law, and because some companies in the United States are now avoiding the DRC, miners are being put out of work or are seeing even their meager wages substantially reduced, thus exacerbating the humanitarian crisis and driving them into the rebels’ camps as a last resort.”

The Court stated “all of this presents a serious problem for the SEC because, as we have said, the government may not rest on such speculation or conjecture. Rather the SEC had the burden of demonstrating that the measure it adopted would “in fact alleviate” the harms it recited “to a material degree.” The SEC has made no such demonstration in this case and, as we have discussed, during the rulemaking the SEC conceded that it was unable to do so. This in itself dooms the statute and the SEC’s regulation.”