Free Speech or False Advertising?

Nike's sweatshop-statement case hits the Supreme Court

On Apr. 23, the U.S. Supreme Court will hear Kasky v. Nike, a suit claiming that the Beaverton (Ore.) footwear giant's public-relations efforts misled consumers about abusive working conditions at the overseas factories that produce its shoes. The outcome could alter the definition of commercial speech, potentially leading to new restrictions on the claims that corporations can make about their behavior. A number of groups, including the American Civil Liberties Union, The New York Times, and the AFL-CIO have filed briefs on behalf of Nike Inc., arguing that a ruling for the plaintiff could erode free-speech protections.

What is Nike accused of?

In 1997, Nike (NKE ) hired Andrew Young, the former U.N. Ambassador, to evaluate 12 factories that make its sneakers, mostly in Asia. Young issued a favorable report, and Nike issued press releases about his findings. It also wrote letters to colleges faced with anti-sweatshop activists who were urging the schools to boycott Nike products. The company emphasized its code of conduct requiring factory contractors to adhere to decent labor standards.

A year later, San Francisco activist Marc Kasky sued Nike for false advertising under California consumer protection laws. He alleged that Nike's campaign misled the public about working conditions inside its factories. In response, Nike argued that its statements concerned labor practices, not products, and therefore should be considered protected political speech.

And Nike lost?

Two lower courts agreed with Nike. But last April, the California Supreme Court reversed the decision. In a 4-3 vote, it ruled that the company's campaign was commercial speech, even though it wasn't talking specifically about its shoes. Corporations know that such issues as labor conditions contribute to the public's perception of a company and consumers' willingness to buy its products, the court ruled. The justices didn't decide whether Nike really did abuse workers or mislead consumers, leaving those questions for an eventual trial court. On Jan. 10, the Supreme Court agreed to evaluate the constitutionality of the California court's ruling.

Aren't such topics as labor conditions in low-wage countries inherently political?

The issue is how to distinguish between political and commercial speech. The U.S. Supreme Court has held that political speech, even when inaccurate, enjoys First Amendment protections. But that's not true of advertising and other forms of commercial speech that are intended to boost sales and profits. They're subject to state consumer protection laws, which require companies to prove the accuracy of their statements.

So how to draw the line?

The Kasky case raises a complex issue that the courts haven't addressed before. If Nike had paid for newspaper or TV ads, the commercial nature of its statements would be obvious. But in this case, the company wrote letters and issued news releases. Nike's lead lawyer, Harvard University law professor Laurence H. Tribe, argues that treating them as equivalent to advertising would undercut companies' ability to speak out on political issues.

But the California court made the opposite point: If Nike can misrepresent the conditions under which its shoes are made with impunity just by issuing the information in the form of a press release, then any company can use the First Amendment to shelter falsehoods aimed at selling its wares. "If a company makes false statements about its product or practices with the intent of increasing profits, that's commercial speech," says Erwin Chemerinsky, a First Amendment scholar and University of Southern California law professor who filed a brief supporting the Kasky position.

Can Nike's critics cite examples?

Chemerinsky and others argue that if Nike wins, a cosmetics company, for instance, could put out press statements denying that it tests its product on animals even if it does so routinely. Such statements would be beyond the reach of consumer protection laws.

Or take tobacco. For years, the industry claimed in newspaper interviews and congressional testimony that no evidence existed to prove smoking was unhealthy. When it turned out that the companies did know of such evidence, they couldn't hide behind the First Amendment and were held liable.

What do Nike's defenders say?

They argue that the California Supreme Court ruling will make companies less willing to speak out on important public issues. "This chilling effect will deprive the public of access to important news stories about the clash of competing viewpoints that undergirds the First Amendment," warns The New York Times' brief.

Who's likely to prevail?

Nike has the best odds, given how many weighty groups support a free-speech interpretation. But Tribe may have painted himself into a corner by defining commercial speech too narrowly. The only corporate statements that qualify, he argues, are those involving a direct economic transaction, such as a paid advertisement or product warranty. Otherwise, "you open the categories of commercial speech to anything the company says," says Tribe.

California Supreme Court Justice Janice Rogers Brown put her finger on the difficult task before the high court. Although she ultimately came down on Nike's side, she advocated a "nuanced" approach that guarantees corporations' ability to participate in public debate "without giving them free reign to lie and cheat." It will take the wisdom of Solomon to walk that fine line.

By Stanley Holmes in Seattle

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