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National Association of Manufacturers v. Securities and Exchange Commission

Closed Expands Expression

Key Details

  • Mode of Expression
    Pamphlets / Posters / Banners
  • Date of Decision
    August 18, 2015
  • Outcome
    Law or Action Overturned or Deemed Unconstitutional
  • Case Number
    13-5252
  • Region & Country
    United States, North America
  • Judicial Body
    Appellate Court
  • Type of Law
    Constitutional Law
  • Themes
    Content Regulation / Censorship

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Case Analysis

Case Summary and Outcome

The U.S. Securities and Exchange Commission (SEC) required companies to disclose on their websites and in reports to the SEC whether they used minerals from African regions in conflict (conflict disclosure). The U.S. Court of Appeals ruled that the label was compelled speech, which the government failed to show would reduce violence in the Democratic Republic of the Congo (DRC), and thus it violated the companies’  free speech rights. The current case reviewed the U.S. Court of Appeal’s earlier ruling on the disclosure in light of a decision that allowed the government to compel meat companies to put origin of production labels on their products. The court upheld its earlier ruling, stating that the meat label case did not apply since the conflict disclosure label did not deal with advertisement or point of sale issues.


Facts

The 2010 Dodd Frank Wall Street reform law included a provision requiring public companies to disclose on their websites and in reports to the SEC whether the products they produce include materials from war torn regions of Africa, specifically the DRC.

The National Association of Manufacturers (NAM) challenged the law arguing that the SEC adopted the costliest rule and rejected alternative regulation (administrative procedure). NAM also argue that the law’s requirement to place a “conflict free” label was compelled speech that violated the First Amendment.

In June 2013, the U.S. District Court for the District of Columbia ruled against NAM on both arguments. On April 14, 2014, the U.S. Court of Appeals upheld the district court’s ruling on the administrative procedure issue, but rejected its ruling on the compelled speech issue. On August 18, 2015, the U.S. Court of Appeals  reheard the case on the First Amendment issue per the requests of the SEC and Amnesty International in light of this court’s intervening decision in the case of American Meat Institute v.U.S. Department of Agriculture, 760 F.3d 18 (AMI) and its application of the Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (Zauderer). The AMI case ruled that the federal government did not violate the First Amendment when it compelled companies to place country of origin labels on their meat.


Decision Overview

The decision overview is based on the most recent court decision on the First Amendment compelled speech issue.

The main issue in this case concerned the purpose of the conflict minerals label. Defining the purpose allows the court to pick what test to apply in judging the constitutionality of compelled speech. If the purpose of compelled speech related to voluntary commercial advertising then a more relaxed test listed in Zauderer and used in AMI, the meat labeling case, could be applied. The Zauderer two part test required that (1) the government’s compelled speech advances a substantial interest, and (2) the compelled speech was reasonably related to the government’s substantial interest.

If the compelled speech was for commercial speech for other purposes, then the court would apply the test listed in the Central Hudson Gas & Electric Corp. v Public Service Commission, 447 U.S. 557. The Central Hudson test requires governments to show (1) substantial government interest (2) directly and materially advanced by the restriction (3) and that the restriction is narrowly tailored.

 The court ruled that the conflict minerals disclosure did not deal with voluntary commercial advertising or points of sale since it  required companies to disclose on their websites and reports to the SEC. Thus, the Zauderer test did not apply. The court reiterated that in its prior judgment on this case, it did not decide whether to apply the strict scrutiny test or the Central Hudson test because the labeling requirement violated Central Hudson‘s requirement that the restriction be narrowly tailored as the government did not provide evidence that less restrictive means would fail the purpose of the regulation. Despite its early ruling that the label was unconstitutional, the court nonetheless went through the application of the AMI and Central Hudson tests since it felt that there was too much uncertainty in the legal reasoning of applying the tests.
First, the court determined that the substantial interest required by both the AMI and Central Hudson was to ameliorate the humanitarian conflict in the DRC. The court identified the substantial interest from the SEC’s appellate briefs.
The court then evaluated the effectiveness of the measures to achieve the substantial interest. The court explained that the government offered little evidence in this regard and dismissed the government’s assertion that the regulation was based on a value judgment of common sense in a foreign affairs matter and that foreign relations judgments are not always made on concrete evidence. The court reiterated that this was speculation and conjecture, lacking quantifiable evidence, and although the label might have positive effects, the lack of evidence  was not enough to compel speech under the First Amendment.
The court also reviewed the compelled disclosure in this case against the AMI holding that compelled disclosure must be purely factual and uncontroversial. The court explained that there was no clear definition as to what “purely factual and uncontroversial” meant, only that “uncontroversial” must have meant something different than purely factual. The court explained that something factual and uncontroversial presently may be different in the future, citing the example of new findings regarding the effect of eggs on cholesterol levels in people after new studies. The court also explained that a controversy was a dispute, especially a public one. However, the court failed to offer a specific definition or a test of the “factual and uncontroversial” legal standard.
Lastly, the court ruled that even if the government statutorily defined “conflict free”, it was not enough to withstand constitutional review of compelled speech. This is because ruling otherwise would allow the government to compel companies to use certain speech simply by defining it, which in turn would allow the government to skew public debate in certain directions by using certain definitions.
The court concluded that the labels “conflict free” or “not conflict free” were hardly factual and non-ideological because they conveyed a moral responsibility for the Congo war on companies that only indirectly finance armed groups.

Decision Direction

Quick Info

Decision Direction indicates whether the decision expands or contracts expression based on an analysis of the case.

Expands Expression

The decision reiterates judicial precedent that restrictions on commercial speech must stem from fact, rather than be based on speculation, no matter how important a purpose they might serve. Moreover, the court ruled that the government statutorily defining terms for compelled speech purposes will not protect such speech from judicial scrutiny.

Global Perspective

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Global Perspective demonstrates how the court’s decision was influenced by standards from one or many regions.

Table of Authorities

National standards, law or jurisprudence

Case Significance

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Case significance refers to how influential the case is and how its significance changes over time.

The decision establishes a binding or persuasive precedent within its jurisdiction.

The case was decided by the U.S. Court of Appeals, which is the second highest court in the United Staets.

Official Case Documents

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