A federal appeals court in Washington threw out a regulation under the Dodd-Frank Act requiring public companies to state whether they use "conflict minerals" in their products, setting down strong First Amendment protection for corporate speech that goes further than a larger en banc panel of the same court allowed in another case.
The decision by the U.S. Court of Appeals for the D.C. Circuit in National Association of Manufacturers v. SEC was written by Judge A. Raymond Randolph, a Republican appointee. It's filled with literary references and asides questioning the wisdom of allowing the government to put words in corporate mouths. Randolph's opinion drew an equally strong dissent from Sri Srinivasan, an Obama appointee, who said the government already requires public companies to make all manner of disclosures, so informing investors about whether they use minerals from the war-torn Democratic Republic of the Congo is no more onerous.
The decision and dissent highlight the long-running argument over whether courts should apply a lower standard of protection for so-called "commercial speech" than for other forms of expression, and whether the government should be required to explain its motives for compelling companies to say certain things. While it is uncontroversial to require companies to be truthful in their advertising, and the Securities and Exchange Commission requires a whole raft of disclosures in offering documents and other information provided to investors, those rules have the goal of preventing consumer deception.
More controversial are rules designed to steer consumers away from products the government disapproves of, such as cigarettes, or to put certain messages before the public. In this case, Congress required the SEC to come up with a rule under the Dodd-Frank Act requiring companies to identify whether they used certain minerals in their products and disclose if they had “not been found to be `DRC conflict free.’”
“No one said these publicly traded companies are lying about anything," said Megan Brown, a partner with Wiley Rein in Washington. "This is an agenda: They wanted to affect the international market for these conflict minerals by shaming companies."
The court struck down the conflict-minerals rule last year and then agreed to a rehearing after an en banc panel upheld similar labeling requirements for foreign-bred meat in American Meat Institute v. USDA. Randolph clearly doesn't think much of that decision, noting it enforced a labeling requirement designed to steer consumers toward U.S. beef, one the World Trade Organization condemned as protectionist and contrary to U.S. treaty obligations in a decision upheld by a WTO appeals body in May.
The majority also rejected close comparisons to Zauderer v. Office of Disciplinary Counsel, a 1985 U.S. Supreme Court decision upholding rules requiring lawyers to make disclosures in their advertising. The government and the dissent read Zauderer to mean companies can be forced to add disclosures to their speech if it provides meaningful information to consumers and investors.
Whether or not SEC filings fall under the reasoning in Zauderer, the majority ruled, the important point is Justice Byron White's statement that "disclosure requirements" must be "reasonably related to the State’s interest in preventing deception of consumers.”
Judge Srinivasan, in dissent, said "issuers of securities must make all sorts of disclosures about their products for the benefit of the investing public."
No one thinks that garden-variety disclosure obligations of that ilk raise a significant First Amendment problem. So here, there should be no viable First Amendment objection to a requirement for an issuer to disclose the country of origin of a product’s materials.
That drew this literary retort from Randolph:
Charles Dickens had a few words about this form of argumentation: “‘Whatever is is right’; an aphorism that would be as final as it is lazy, did it not include the troublesome consequence, that nothing that ever was, was wrong.”
The D.C. Circuit's decision is important because it provides strong First Amendment protection against compelled corporate speech, said Brown of Wiley Rein. Opponents of such protection would like to compel companies to disclose sorts of things, she said, like wages paid to their workers and whether their investments meet some group's standard for sustainability.
There's not much question about how the majority views this. Randolph wrote skeptically about the whole idea of requiring companies to state "facts" that may not be. The line between fact and opinion “is often blurred,” he noted:
Is Einstein’s General Theory of Relativity fact or opinion, and should it be regarded as controversial? If the government required labels on all internal combustion engines stating that “USE OF THIS PRODUCT CONTRIBUTES TO GLOBAL WARMING” would that be fact or opinion? It is easy to convert many statements of opinion into assertions of fact simply by removing the words “in my opinion” or removing “in the opinion of many scientists” or removing “in the opinion of many experts.”
The judge goes on to cite a 1977 appeals-court decision upholding a Federal Trade Commission order prohibiting ads saying eggs don’t increase cholesterol levels. Oops: The Agriculture Dept. this year determined there was “no appreciable relationship” between the consumption of dietary cholesterol and blood cholesterol levels.
He also cites as an example of “governmental redefinition” George Orwell’s famous slogans from 1984:
WAR IS PEACE
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH
The Supreme Court almost certainly will have to step in to decide some of the questions presented in this case.
“The real fight is, is the First Amendment in a business setting a restraint on government?" Brown asked, under which the government must show its regulations achieve some public goal. Or "is it almost a grant of power to the government," as some courts have found, under which companies can be forced to disseminate information in the interest of broader speech?
