Nike, Inc. et al. v. Kasky, Marc

Questions presented: 1. When a corporation participates in a public debate, writing letters to newspaper editors and to educators and publishing communications addressed to the general public on issues of political, social, and economic importance, may it be subjected to liability for factual inaccuracies on the theory that its statements are "commercial speech" because they might affect consumers' opinions about the business as a good corporate citizen and thereby affect their purchasing decisions? 2. Even assuming the California Supreme Court properly characterized such statements as "commercial speech," does the 1st Amendment, as applied to the states through the 14th Amendment, permit subjecting speakers to the legal regime approved by that court in the decision below?

BY: ANKUR BAHL, MEDILL NEWS SERVICE

In the fall of 1997 a disgruntled employee leaked a confidential audit of a Nike factory in Southeast Asia. The audit said Nike factory workers were exposed to toxic chemicals without protection, forced to work illegal excess overtime, and endured poor ventilation and a lack of drinking water.

The audit, conducted by Ernst & Young, appeared to refute Nike's public claims of ethical treatment of employees overseas.

Since the beginning of the 1990s, Nike had been countering negative publicity about its employee treatment practices with press releases, letters to newspapers, and letters to university presidents and athletic directors. But the Ernst & Young report seemed to prove that Nike was not entirely truthful in its statements.

In San Francisco, Marc Kasky read a New York Times story about Nike's alleged employee abuses. Outraged, the activist contacted attorney Alan Caplan and decided to sue Nike.

Among other complaints, Kasky claimed Nike was misleading when it said that employees were not victims of corporal punishment and/or sexual abuse, and that Nike followed government regulations on wages, hours, and health and safety conditions.

Kasky's suit filed in San Francisco claimed the Oregon-based athletic apparel company had engaged in false advertising by releasing those misleading statements about labor practices.

California is a good breeding ground for such a suit because its consumer-protection laws are very broad. To win the case, Kasky wouldn't even have to prove he had been harmed. He could file suit on behalf of the people of the state of California, and he did.

In the suit, Kasky asked for three remedies: that Nike stop all misrepresentations in California, that Nike begin an ad campaign to correct the misconceptions, and that Nike refund or donate the money it made off shoes it sold in California during the time of the false advertisement.

The case pitted an environmental activist in his late-fifties who has managed a foundation that preserves San Francisco's Ft. Mason against a cultural icon with revenues of $9.2 billion and an advertising budget of almost $1 billion.

Caplan, Kasky's attorney, had experience attacking advertising practices of corporate giants; he was an attorney who helped bring about the demise of the "Joe Camel" campaign for Camel cigarettes, claiming it targeted children. In Caplan's eyes, the argument is simple: "If a company is going to act as a commercial speaker and direct comments toward a commercial audience and discuss facts about their own products and how they are made for the purpose of promoting sales, then it's commercial speech and we should protect consumers from false statements of fact."

But the courts did not see it that way. The case was dismissed from San Francisco Superior Court in 1999 and the California Court of Appeal affirmed in 2000. In both situations Nike was able to convince the court that the issue was not whether the statements were false or misleading, but that the corporation's speech was protected by the 1st Amendment.

Nike attorney Tom Goldstein explained that the corporation was simply engaged in a public debate and should not become vulnerable to civil suits for exercising its right to free speech. "There are statements of opinion about how globalization should continue, and there are also statements of fact," he said. "There was a mix and that is how public debate is conducted?.Facts have to be a critical part of debate."

But Kasky and Caplan maintain that Nike's public relations was not protected speech. The company was advertising and should be held to the stricter false-advertising standard of speech. Caplain explained, "Nike was not engaged in a debate about globalization, they were only responding to specific facts about factories in Asia?and those facts, we allege, were false?They have access to the truth and these statements were not made off the cuff. These were premeditated statements that were false."

In 2002, four years after the suit was filed, Kasky received a favorable decision from the Supreme Court of California. In a 4-3 ruling, the court decided Nike and other corporations are not protected by the 1st Amendment when they disseminate information about their own labor practices.

Justice Joyce Kennard wrote the opinion for the majority. She explained, "Because in the statements at issue here Nike was acting as a commercial speaker, because its intended audience was primarily the buyers of its products, and because the statements consisted of factual representations about its own business operations, we conclude that the statements were commercial speech for purposes of applying state laws designed to prevent false advertising."

Kennard continued by saying, "commercial speech that is false or misleading is not entitled to First Amendment protection and 'may be prohibited entirely.'"

But the court was divided. In her dissent, Justice Janice Rogers Brown argued that Nike couldn't engage in the debate without making reference to its labor practices, because its labor practices were the very topic of the debate. She explained that the boundaries established by the majority opinion were invalid because, "the gap between commercial and noncommercial speech is rapidly shrinking."

Goldstein agreed with the court minority, saying, "Everything a corporation says can influence its customers?according to Kasky's theory everything a company says is commercial speech and gets less protection."

Though the California Supreme Court did not decide if the statements were, in fact, false or misleading, the ruling revived Kasky's suit. Instead of returning to San Francisco for a trial on whether the statements were in fact false, Nike appealed to the U.S. Supreme Court, which accepted the case for review on Jan. 10, 2003.

The Court allowed a host of organizations to file friend of the court briefs. Among them were the Center for the Advancement of Capitalism and 32 leading newspapers and magazines.

The high court was asked to decide if Nike's statements were commercial speech subject to truth-in-advertising laws or public statements protected by the 1st Amendment. The conventional wisdom going into the appeal was if the Court ruled in favor of Kasky and decided Nike's speech was not constitutionally protected, the case would return to a trial court in California and Kasky would get a chance to prove Nike misled consumers. If the Court ruled in favor of Nike, Goldstein predicted the case would die. In either situation, the implications for corporate speech were thought to be significant.

Joshua Karliner, executive director of CorpWatch, a corporate watchdog group told MotherJones.com: "If (Kasky) is successful it could undermine the greenwashing strategies of a lot of corporations that attempt to promote a positive environmental or social image to undermine their critics and minimize the damage done to their brand."

However Goldstein argued the implications of a ruling in favor of Kasky would be detrimental to free public discussion. "It really does interfere with speech by companies. It really invites a lot of lawsuits against speech by companies and makes them less likely to talk. The reason we have healthy debate about globalization is because someone can say, "I think Adidas, Nike, IBM have bad labor practices in southeast Asia," and they can speak freely because they are not afraid of being sued. The same should apply to a company?What (the ruling) accomplishes is that it makes people afraid to talk and it has made Nike afraid to talk."

Despite all the anticipation, on June 26, 2003, the final day the Court issued opinions in its 2002-03 term, the Court dismissed the case. In a one-sentence per curiam opinion, the Court noted the writ of certiorari was being dismissed as improvidently granted. The whole Court gave no reason why.

Three justices -- Justices Sandra Day O'Connor, Anthony Kennedy and Stephen Breyer -- indicated they would have ruled on the case. In addition, Justice John Paul Stevens issued a written opinion, providing a hint of what the Court was thinking in dismissing the case. "This case presents novel First Amendment questions because the speech at issue represents a blending of commercial speech and debate on issues of public importance," Stevens wrote for himself and Justices David Souter and Ruth Bader Ginsburg, though he also said that the Court did not need to delve into the complex free speech issues yet.

A few months later, in September, the case was settled. Included in the settlement terms was a pledge by Nike to alloocate $2 million on workplace education. The company also announced that it was lowering its profile in California and would issue its corporate responsibility report outside the state.