As discussed in a previous post, the SEC’s final Conflict Minerals rule, adopted in August 2012 to implement Section 1502 of the Dodd-Frank Act, has a number of undefined terms and ambiguous provisions that require difficult interpretations of the rule’s applicability. One example is whether the critical term “product” includes packaging. For example, if a company sells canned soup, is the product the soup, the can, or both? If the can contains tin, one of the four “conflict minerals,” the answer to this question could determine whether the company must fulfill SEC reporting obligations or not.
The SEC is aware that many companies are struggling with this (and other) questions, and has said it is planning to issue guidance, but more than six months after the rule’s publication, no official interpretation has appeared. However, in its initial response brief in the legal challenge of the rule, now pending in the D.C. Circuit, the SEC included a footnote that hints at its view. Seeking to minimize arguments that the rule is arbitrary and capricious, the SEC’s brief rejects concerns raised by amici that the rule “could be read to include a product’s packaging.” To the contrary, the SEC brief argues, “nothing in the release states that packaging is included.” (SEC Brief at 50, n.9.) While this is true, it is also the case that nothing in the rule states that packaging is not included, and the debate about this question has focused on those products that cannot viably be sold without protective or other necessary packaging. Those watching these issues closely will have to stay tuned to see what happens next in the ongoing effort to interpret and implement the SEC’s Conflict Minerals rule.