by Cydney Posner

In November, the D.C. Circuit Court of Appeals granted the petitions of the SEC and Amnesty International for panel rehearing in connection with the conflict minerals case, National Association of Manufacturers, Inc. v. SEC. The order of the Circuit Court directed the parties to file supplemental briefs addressing the following specific questions related to the case’s First Amendment issue:

(1) What effect, if any, does this court’s ruling in American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc), have on the First Amendment issue in this case regarding the conflict mineral disclosure requirement?

(2) What is the meaning of “purely factual and uncontroversial information” as used in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), and American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (en banc)?

(3) Is determination of what is “uncontroversial information” a question of fact?

By way of background, in April, a three-judge panel of the D.C. Circuit struck down a portion of the SEC’s conflict minerals rule on First Amendment grounds. In that case, the Court decided that the requirement to disclose whether companies’ products were “not found to be DRC conflict free” amounted to “compelled speech” in violation of companies’ First Amendment rights.  Both the SEC and Amnesty International filed petitions with the D.C. Circuit requesting a rehearing en banc regarding the First Amendment issue, but requested that the Court hold the petitions in abeyance pending issuance of the en banc decision on a similar issue in American Meat Institute v. U.S. Dept. of Agriculture. The precise question that was before the en banc panel in AMI was “[w]hether, under the First Amendment, judicial review of mandatory disclosure of ‘purely factual and uncontroversial’ commercial information, compelled for reasons other than preventing deception, can properly proceed under [the more lenient standard of] Zauderer v. Office of Disciplinary Counsel… or whether such compelled disclosure is subject to review under Central Hudson Gas & Electric v. PSC of New York….” The en banc panel  in AMI held (with two dissents) that “Zauderer in fact does reach beyond problems of deception, sufficiently to encompass the disclosure mandates at issue here.” Moreover, specifically citing the NAM conflict minerals case, the Court indicated that “[t]o the extent that other cases in this circuit may be read as holding to the contrary and limiting Zauderer to cases in which the government points to an interest in correcting deception, we now overrule them.” (For a more complete discussion of these cases and legal standards, see my posts of 7/16/147/29/14 and 9/14/14.)  With AMI decided, the question then was whether, under Zauderer and AMI, the mandated conflict minerals disclosure could satisfy the test for “purely factual and uncontroversial” commercial information, the focus of the Court’s questions above.

Yesterday, the SEC, intervenor Amnesty International and amici Global Witness and Free Speech for People filed their briefs in support of upholding the conflict minerals disclosure requirement. In its supplemental brief, the SEC argued that the required disclosure at issue “is consistent with the First Amendment under either Zauderer or Central Hudson.” According to the SEC, the required disclosure is “purely factual and uncontroversial information,” as discussed in Zauderer and AMI: it is “factual” in that it is “objectively determinable rather than a statement of viewpoint or opinion, and ‘uncontroversial’ in that its expression is not tantamount to the expression of a viewpoint or opinion either because its veracity or accuracy is subject to debate or for other reasons.”  This case is not one in which significant First Amendment interests are at stake, the SEC asserted, such as requiring “Live Free or Die” on license plates or mandating recitation of the pledge of allegiance, instances “where the government attempts ‘to prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.’” 

Nor, the SEC argued, is the mandated disclosure “controversial” or an instance of “a seemingly factual statement [that] can convey a viewpoint and therefore trench on First Amendment rights,” such as graphic cigarette warnings that were viewed to be merely inflammatory and not to convey any factual information. Moreover, the SEC contends, factual statements are not controversial simply because the speaker objects to disclosing them or disagrees that the information is important to consumers. Rather, the “inquiry into the application of Zauderer properly focuses on whether the information disclosed, rather than the topic to which it relates, is ‘factual or uncontroversial.’” Here, the SEC maintains, the required description that products “have not been found to be ‘DRC conflict free’” is made following a lengthy description of the efforts of the issuer to conduct due diligence, which conveys the “precise nature of an issuer’s known connection to the conflict.”  In that context, the compelled disclosure “merely measures the results of that due diligence against an objectively defined standard. It is therefore ‘factual and uncontroversial.’”  The disclosure is actually, the SEC argues, one of “literal fact” and does not inherently imply that the issuer’s products are “ethically tainted.”

With respect to other elements of Zauderer, using a “disclosure mandate to achieve the goal of informing consumers about a product, the government ‘will almost always demonstrate a reasonable means-ends relationship, absent a showing that the disclosure is ‘unduly burdensome’ in a way that ‘chill[s] protected commercial speech.’”  That is especially true here, where the disclosure appears not on the product, but rather in a report filed with the SEC. The SEC also argues that even if Central Hudson applied,  the SEC must only show that there is “a ‘reasonable fit’ or a ‘reasonable proportion’ between means and ends,” and need not show that the requirement is the “least restrictive means” available.

Amnesty International’s supplemental brief advances again, as it did in its earlier briefs, that whether information is “purely factual and uncontroversial is not necessarily part of the “legal test that all disclosures subject to review under the Zauderer standard must satisfy.… Zauderer itself used the phrase “purely factual and uncontroversial” to characterize the particular information subject to disclosure in that case, not to articulate a legal test.”

However, given the nature of the questions posed by the Court, Amnesty finesses the point by acknowledging that it does “not mean to suggest that the phrase ‘purely factual and uncontroversial’ is without significance.”  Rather, similar to the argument of the SEC, it contends that the “contrast posits a distinction between, on the one hand, requirements that commercial speakers disclose accurate factual information and, on the other, requirements that they subscribe to disputed matters of political, religious or other forms of opinion.” Likewise, “Zauderer’s use of the term ‘uncontroversial,’ though ill-suited to establishing an element of a legal standard, is evocative of two aspects of this dichotomy: Zauderer does not extend to compulsion to endorse messages about matters of belief or opinion, and the facts subject to disclosure must be accurate rather than controverted.”  An accurate factual statement, they assert, is not “controversial” simply “because it provokes an emotional reaction or provides information pertinent to topics on which opinions are debated….Indeed, much of the value of factual information in a commercial setting is that it enables market participants to act on their own opinions about whether, how, and to what extent that information is relevant to marketplace decisions.”

Relying heavily on SCOTUS’s decision in Meese v. Keene, 481 U.S. 465 (1987), Amnesty contends that the term “DRC conflict free” should be construed consistently with the neutral definition in the rules.  Meese held that “a label reflecting neutral, objective criteria defined by law—there, the label ‘propaganda’ as applied to a film—is not ‘pejorative’ merely because someone unfamiliar with the legal definition might misunderstand it.”  Here, the mandated “disclosure requires no statement of moral responsibility, confession of ethical taint or complicity in armed conflict, or agreement with any viewpoint about the cause of conflict in the DRC. It is a statement about whether investigation has shown that the sourcing of minerals used in the company’s products does not finance or support specifically identified armed groups.”  As a result, Amnesty concludes, the Zauderer test applies and the required disclosure does not violate the First Amendment.

The brief of amici Global Witness and Free Speech for People largely follows the path tread by the SEC and Amnesty.  It does, however, advance one novel argument: that “[n]othing in the statute or the rule requires any speaker to use any variant of the term ‘DRC conflict free.’ The SEC regulation…requires issuers to follow the instructions on SEC Form SD. The instructions on the form constitute the only source of legal requirements directly binding on issuers required to file reports. They provide in relevant part: ‘Product Description: Any registrant that manufactures products or contracts for products to be manufactured that have not been found to be ‘DRC conflict free,’…must provide a description of those products, …. A statement as simple as ‘the following products are required to be disclosed pursuant to 15 U.S.C. § 78m(p)(1)(A)(ii) and its implementing rule’ followed by a description of the products…would satisfy this mandate…. The panel only held Section 1502 and, by extension the rule, constitutionally problematic ‘to the extent’ they required ‘use of the particular descriptor ‘not found to be ‘DRC conflict free.’”

This argument, while creative in suggesting a possible practical solution, may be a bit of an uphill climb for the Court. Instruction 2 to Item 1.01 of Form S-D provides: “Beginning with the third or fifth reporting calendar year, as applicable, a registrant with products manufactured or contracted to be manufactured that are ‘DRC conflict undeterminable,’ must describe those products as having not been found to be ‘DRC conflict free’….”  Likewise, in the CDIs interpreting the conflict minerals rules, the answer to Question 9 states as follows: “Regardless of the manner by which an issuer describes its products, however, the description in the Conflict Minerals Report filed with Form SD must state clearly that the products ‘have not been found to be ‘DRC conflict free’’ or are ‘DRC conflict undeterminable,’ as applicable.” Of course, the CDIs are just staff guidance, but nevertheless suggest the intent of the rules.

Briefs from appellants are due in about 20 days. Stay tuned.

Posted by Cydney Posner