National Ass'n of Manufacturers v. Securities & Exchange Commission
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Full Opinion
dissenting:
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 — including, say, whether the product contains specified minerals from the Democratic Republic of the Congo (DRC) or an adjoining country, the site of a longstanding conflict financed in part by trade in those minerals. Such a requirement provides investors and consumers with useful information about the geographic origins of a product’s source materials. Indeed, our court, sitting en banc, recently relied on “the time-tested consensus that consumers want to know the geographical origin of potential purchases” in upholding a requirement for companies to identify the source country of food products. Am. Meat Inst. v. U.S. Dep’t of Agric., 760 F.3d 18, 24 (D.C.Cir.2014) (internal quotation marks omitted). It is hard to see what is altogether different about another species of “geographical origin” law requiring identification of products whose minerals come from the DRC or adjoining countries.
If an issuer’s products contain minerals originating in those conflict-ridden countries, the Conflict Minerals Rule requires the issuer to determine whether the products are “DRC conflict free,” where “DRC conflict free” is a statutorily defined term of art denoting products that are free of “conflict minerals that directly or indirectly finance or benefit armed groups” in the DRC or adjoining countries. 15 U.S.C. § 78m(p)(l)(D). If the issuer cannot conclude, after investigating the sourcing of its minerals, that a product is “DRC conflict free” under the statutory definition, it must say so in a report disclosing that the product has “not been found to be ‘DRC conflict free.’ ” The requirement to make that disclosure, in light of the anticipated reaction by investors and consumers, aims to dissuade manufacturers from purchasing minerals that fund armed groups in the DRC region. That goal is unique to this securities law; but the basic mechanism — disclosure of factual information about a product in anticipation of a consumer reaction — is regular fare for governmental disclosure mandates. Many disclosure laws, including the law upheld in AMI, operate in just that way.
Appellants raise no First Amendment objection to the obligation to find out which of their products fail to qualify as “DRC conflict free” within the meaning of the statutory definition. Nor do they challenge the obligation to list those products in a report for investors. Appellants also presumably would have no problem with a requirement to list the products by parroting the statutory definition, i.e., as products that have not been determined to be free of conflict minerals that “directly or indirectly finance or benefit armed groups” in the DRC region. At least some issuers in fact have been making essentially that sort of disclosure, without apparent objection, under the partial stay of the Rule in effect since our original panel decision. See Exchange Act Rule 13p-l and Form SD, Exchange Act Release No. 72,079 (May 2, 2014); e.g., Canon Inc., Conflict Minerals Report (Form SD Ex. 1.01) § 5 (May 29, 2015).
Appellants’ challenge instead is a more targeted one: they object only to the ^ Rule’s requirement to describe the listed products with the catchphrase “not been found to be ‘DRC conflict free.’ ” But if there is no First Amendment problem with
Perhaps one might object that the meaning of the shorthand description “DRC conflict free” would not necessarily be known to a reader. But that descriptor comes amidst a set of mandated disclosures about the measures undertaken to determine the source of minerals originating in the DRC or adjoining countries. So the meaning of “DRC conflict free” would seem quite apparent in context. And even if otherwise, an investor or consumer coming across that term for the first time would, with little effort, learn that it carries a specific meaning prescribed by law.
But that’s not all. To eliminate any possibility of confusion, the Rule’s disclosure obligation enables the issuer to elaborate on the prescribed catchphrase however it sees fit. So, for example, the issuer could say that the listed products have “not been found to be ‘DRC conflict free,’ which is a phrase we are obligated to use under federal securities laws to describe products when we are unable to determine that they contain no minerals that directly or indirectly finance or .benefit armed groups in the DRC or an adjoining country.” At that point, there would seem to be nothing arguably confusing or misleading about the content of the Rule’s mandated disclosure.
The First Amendment, under the Supreme Court’s decisions, poses no bar to the Rule’s disclosure obligation. The Court has emphasized that “the extension of First Amendment protection to commercial speech is justified principally by the value to consumers of the information such speech provides.” Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651, 105 S.Ct. 2265, 85 L.Ed.2d 652 (1985). Correspondingly, when the government requires disclosure of truthful, factual information about a product to consumers, a company’s First Amendment interest in withholding that information from its consumers is “minimal.” Id. That is why countless disclosure mandates in the commercial arena — country of origin of products and materials, calorie counts and nutritional information, extensive reporting obligations under the securities' laws, and so on — raise no serious First Amendment question.
The sum of the matter is this: in the context of commercial speech, the compelled disclosure of truthful, factual information about a product to consumers draws favorable review. That review takes the form of the permissive standard laid down by the Supreme Court in Zauderer. I would apply that approach here.. Like the mine-run of uncontroversial requirements to disclose factual information to consumers in the commercial sphere, the descriptive phrase “not been found to be ‘DRC conflict free’ ” communicates truthful, factual information about a product to investors and consumers: it tells them that a product has not been found to be free of minerals originating in the DRC of adjoining countries that may finance armed groups.
Appellants challenge the prescribed catchphrase for such a product — “not been found to be ‘DRC conflict free’ ” — on the ground that it ostensibly brands issuers with a “scarlet letter.” Appellant Br. 52. Appellants’ invocation of a “scarlet letter” is out of place. If they mean to suggest that issuers would prefer to avoid the label “not found to be ‘DRC conflict free’ ” because it invites public scrutiny, the same is true of all sorts of entirely permissible requirements to disclose factual informa
I would therefore hold that the favored treatment normally afforded to compelled factual disclosures in the commercial arena applies to the Conflict Minerals Rule. The obligation to use the term “not been found to be ‘DRC conflict free’ ” should be subject to relaxed Zauderer review, which it satisfies. Even under the less permissive test for restrictions on commercial speech established in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980), I would find that the Rule survives. Because I would conclude that the Conflict Minerals Rule works no violation of the First Amendment, I respectfully disagree with the contrary decision reached by my colleagues.
I.
An understanding of the unique treatment afforded to compelled disclosures in the area of commercial speech substantially informs the proper resolution of the First Amendment challenge in this case. As we recognized -in AMI, 760 F.3d at 21-22, and as the Supreme Court has emphasized, the starting premise in all commercial speech cases is the same: the First Amendment values commercial speech for different reasons than non-commercial speech.
Until 1976, commercial speech received no constitutional protection at all. See Valentine v. Chrestensen, 316 U.S. 52, 62 S.Ct. 920, 86 L.Ed. 1262 (1942), overruled by Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976). When the Supreme Court eventually extended “First Amendment protection to commercial speech,” it did so primarily because of the “value to consumers of the information such speech provides.” Zauderer, 471 U.S. at 651, 105 S.Ct. 2265. The Court protected commercial speech against unwarranted restriction through the framework set out in Central Hudson. 447 U.S. at 564, 100 S.Ct. 2343.
Outside the context of commercial speech, the protections applicable to restrictions on speech directly mirror the protections applicable to compelled speech. Compelled speech, the Supreme Court has observed, generally is “as violative of the First Amendment as prohibitions on speech.” Zauderer, 471 U.S. at 650, 105 S.Ct. 2265. That symmetry does not exist, however, in the area of commercial speech. In that context, there are “material differences between disclosure requirements and outright prohibitions on speech.” Id. When the government requires disclosure of “purely factual and uncontroversial information” about products in the commercial sphere, “the First Amendment interests implicated ... are substantially weaker than those at stake when speech is actually suppressed.” AMI, 760 F.3d at 22 (quoting Zauderer, 471 U.S. at 652 n. 14, 105 S.Ct. 2265).
Thé key to deciding whether to apply Zauderer or Central Hudson, then, turns on the effect of the challenged government regulation. Does the regulation restrict the flow of truthful commercial information, in which case it triggers more searching review under Central Hudson? Or does the regulation expand the flow of truthful commercial information by requiring its disclosure, in which case it occasions less demanding review under Zaudererl
II.
To answer that question for the Conflict Minerals Rule, we must first address a threshold issue: whether the challenged disclosure involves “commercial speech.” The relaxed standard of Zauderer, according to the logic (and letter) of the Court’s opinion, applies only in the context of “commercial speech.” 471 U.S. at 651, 105 S.Ct. 2265.
The Conflict Minerals Rule meets that condition. The Rule requires manufacturers of commercial products to disclose information to the public about the composition of their products — in particular, sourcing information about component minerals contained in the products. In that sense, the disclosure resembles the country-of-origin labeling this court deemed “commercial speech” in AMI. 760 F.3d at 21. Like the labels at issue in AMI, the conflict minerals disclosure informs investors and consumers about the geographic origins of products for sale in the commercial marketplace.
It is true that the conflict minerals disclosure appears in annual reports made available on manufacturers’ websites (and filed with the Securities and Exchange Commission) rather than in product labels or conventional advertisements. But under our precedents, the precise form of the speech does not determine whether it qualifies as “commercial speech.” In United States v. Philip Morris USA, Inc., 566 F.3d 1095 (D.C.Cir.2009) (per curiam),_ we treated corrective statements about products required to be included on the company’s website as commercial speech. Id. at 1138, 1142-45. Philip Morris argued that disclosures on its website could not be considered commercial speech because they were unattached to advertisements. We disagreed. Id. at 1143. Commercial speech, we held, “include[s] material representations about the efficacy, safety, and quality of the advertiser’s product, and other information asserted for the purpose
The Conflict Minerals Rule likewise calls for website disclosures about a company’s products with an eye towards a potential commercial purchase. The conflict minerals disclosure, the Commission explained in announcing the Rule, “provide[s] information” about a product “that is material to an investor’s understanding of the risks in an issuer’s reputation and supply chain.” Conflict Minerals, 77 Fed.Reg. 56,274, 56,-276 (Sept. 12, 2012). That information self-evidently aims at a prospective commercial transaction: an investor’s decision whether to purchase or invest in the issuer’s securities. The Rule’s disclosure obligation therefore should be eligible for relaxed review under Zauderer.
My colleagues in the majority, however, hold that it is insufficient to conclude that the conflict minerals disclosure involves “commercial speech.” In their view, the permissive review normally afforded to commercial disclosure mandates under Zauderer extends only to a sub-category of commercial speech: advertisements and product labels. Ante at 521-22. No other court has ever identified such a limit under Zauderer (or for any other purpose under commercial-speech law). See United States v. Wenger, 427 F.3d 840 (10th Cir. 2005) (applying Zauderer to compelled disclosure in newsletter and radio program). The majority’s newly minted constriction of Zauderer to those particular forms of commercial speech contradicts that decision’s core rationale.
For starters, confining Zauderer to advertising and product labels gives rise to highly curious results. Suppose, for instance, that the Conflict Minerals Rule required companies to include the designation “not been found to be ‘DRC conflict free’ ” in prominent text on product packaging rather than in a once-a-year report posted on a website. The majority would subject that requirement only to Zauderer ’s less demanding form of review. It would be strange, though, if the same compelled commercial disclosure — providing the same information about the same product — commanded more demanding First Amendment scrutiny if it appeared in a single yearly report on the seller’s website instead of on every product label. After all, if faced with the choice between an annual website report and product packaging, a seller would predictably opt for the former. Not only would the company prefer to post the disclosure once a year instead of printing it on every product label, but even as to a single product label, the limited physical space on a product’s packaging makes for a less desirable forum for a compelled commercial disclosure than the unlimited virtual space on a company website.
The majority’s approach, though, would run in the opposite direction. It would impose a more searching First Amendment standard on a disclosure that imposes a less burdensome requirement on the speaker. The anomaly in that result, contrary to the majority’s suggestion, ante at 524 n. 14, has little to do with AMI’s application of Zauderer to contexts beyond prevention of consumer deception. After all, if a requirement to include a disclosure on every product label was aimed to prevent consumer deception, the majority would still subject that requirement only to deferential Zauderer review. But if the same compelled disclosure appeared in a once-a-year website report, the majority would apply a more searching First Amendment standard to that less restrictive obligation. It is entirely unclear why that should be so.
Nothing in Zauderer supports that counter-intuitive result. To the contrary, Zau
To be sure, the Zauderer Court unsurprisingly used the word “advertising” numerous times in the relevant part of the opinion, see ante at 522-23, but only because that was the particular factual context in which the case arose. For what it’s worth, the Court also used “commercial speech” and “commercial speaker” a number of times in the same part of the opinion when explaining the rationale for the relaxed First Amendment standard it set forth, 471 U.S. at 650-52, 105 S.Ct. 2265, and it also did so when framing the question it addressed in that part of its opinion, id. at 629, 105 S.Ct. 2265. What matters is that the Court’s driving rationale, as the Court itself said, applies to “commercial speech” writ large, not just (and not any more so) to advertising alone. Id. at 651, 105 S.Ct. 2265.
Indeed, the majority would extend Zauderer beyond traditional advertising to encompass product labels, as it must after AMI. But tellingly, AMI itself did not conceive of the possibility that Zauderer might apply only to that decision’s specific factual context of advertising (in which event AMI would have needed to assess whether Zauderer also applies to product labels). Rather, AMI examined the range of government interests to which Zauderer pertains on the natural assumption that, whatever the scope of those interests, Zauderer applies to “commercial speech,”' 760 F.3d at 21, not just to certain forms of commercial speech.
Contrary to the majority’s suggestion, ante at 522-24, the Supreme Court’s postZauderer decisions do not indicate otherwise. In Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, a case that had nothing to do with commercial speech, the Court simply quoted Zau■derer’s observation that the government may at- times “prescribe what shall be orthodox in commercial advertising.” 515 U.S. 557, 573, 115 S.Ct. 2338, 132 L.Ed.2d 487 (1995) (quoting Zauderer, 471 U.S. at 651, 105 S.Ct. 2265). In United States v. United Foods, Inc., the Court described Zauderer as “involving attempts by a State to prohibit certain voluntary advertising by licensed attorneys.” 533 U.S. 405, 416, 121 S.Ct. 2334, 150 L.Ed.2d 438 (2001). The Court then restated Zauderer’s outcome, i.e., that it permitted “a rule requiring that attorneys who advertised by their own choice and who referred to contingent fees should disclose that clients might be liable for costs.” Id. Those references in United Foods and Hurley accurately describe Zauderer’s factual context. But there is no reason to think that the references to “advertising” in any way confined Zauderer’s holding.
In short, nothing in Zauderer or any subsequent decision suggests that Zauderer review applies only to conventional advertisements, much less to advertisements plus product labels. Zauderer is a decision about compelled commercial speech. This is such a case.
Once we conclude that the Conflict Minerals Rule regulates “commercial speech,” the next question is whether the Rule should be examined under the relaxed standard set forth in Zauderer or the more restrictive test of Central Hudson. Because the Rule compels rather than restricts commercial speech, it triggers permissive review under Zauderer as long as it requires disclosure of “purely factual and uncontroversial information.” AMI, 760 F.3d at 27 (quoting Zauderer, 471 U.S. at 651, 105 S.Ct. 2265). And while AMI reaffirmed that only “purely factual and uncontroversial” disclosures qualify for Zauderer review, we had no occasion in AMI to define precisely what that standard entails. See 760 F.3d at 27. Inasmuch as “the criteria triggering the application of Zauderer” were “substantially unchallenged,” we reasoned, whatever may be the precise meaning of “purely factual and uncontroversial,” the country-of-origin labeling at issue met that standard. Id.
There was no question, for instance, that the country-of-origin disclosure was “purely factual.” As to “controversial,” we understood that a disclosure might be “controversial” in the “sense” of “disagree[ment] with the truth of the facts required to be disclosed,” but the challengers raised no claim that the country-of-origin disclosure was “controversial in that sense.” Id. Nor did we perceive how the disclosure might be seen as “controversial” in any other sense, ie., “for some reason other than dispute about simple factual accuracy.” Id. We made no effort to identify any such additional meaning of “controversial” that might matter under Zauderer, other than to note that a disclosure “could be so one-sided or incomplete” as to fall outside Zauderer’s zone. Id. But the challengers had made no argument along those lines. Id. The upshot is that AMI left it to a future panel to expound on the contours of “purely factual and uncontroversial.”
In assessing whether the conflict minerals disclosure squares with the phrase “