Nike Loses Court Case On Sweatshop Allegations

SAN FRANCISCO, May 2 2002 (Reuters) - Sportswear giant Nike Inc. can be sued for false advertising over a publicity campaign that sought to dispel reports that Asian sweatshops are used to produce its famous footwear, California's Supreme Court ruled on Thursday.

In a split decision, California's top court found that Nike's efforts to defend its Asian business practices were in essence commercial, and thus not subject to the free speech protections guaranteed by the U.S. Constitution.

"Our holding ... in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices," the court said in its 4-3 majority decision.

"It means only that when a business enterprise, to promote and defend its sales and profits, makes factual representations about its own products or its own operations, it must speak truthfully."

In strongly-worded dissenting opinions, three justices argued that Nike should enjoy free speech protections when attempting to protect its labor record.

"While Nike's critics have taken full advantage of their right to 'uninhibited, robust, and wide-open' debate, the same cannot be said of Nike, the object of their ire," Justice Ming Chin wrote in one dissent.

"When Nike tries to defend itself from these attacks, the majority denies it the same First Amendment protection Nike's critics enjoy."

SWEATSHOP ALLEGATIONS

The Supreme Court decision overturned an appeals court ruling which held that Nike's efforts to defend itself against sweatshop allegations were noncommercial free speech and thus immune from legal challenge.

The case stems from a 1998 civil lawsuit filed in California which charged Nike with willfully misleading the public about working conditions for the Vietnamese, Chinese and Indonesian laborers who produce the footwear with the distinctive "Swoosh" logo.

The lawsuit was among a number of high-profile attacks on Nike over conditions at Asian factories where workers, mostly women between the ages of 18-24, are subcontracted to produce most of its shoes.

The California suit said Nike knew that these workers were subjected to physical punishment and sexual abuse, endured dangerous working conditions, and were often unable to earn a "living wage" despite workdays that could be 14 hours long.

It charged Nike with violating California laws barring false advertising by deliberately obscuring these facts, alleging that the Beaverton, Ore.-based company mounted an aggressive advertising and public relations campaign portraying itself as a "model of corporate responsibility" in an effort to boost sales of its products.

Nike rejected the charges, and argued that the case should not proceed because all of the statements cited in the lawsuit were protected as free speech.

The California Supreme Court emphasized that it was not ruling on the merits of sweatshop charges -- noting that "whether any false representations were made is a disputed issue that has yet to be resolved."

But its decision to allow the suit to go forward marked a potential setback for Nike and other firms which have sought to allay U.S. consumer concern over overseas labor conditions through publicity campaigns depicting happy, well-paid workers in clean, safe factories.

"This is a very important ruling. There's a lot of debate nowadays about globalization, and manufacturing products overseas where working conditions are different. Now in California, if a company is going to discuss about the labor conditions in their factories they cannot be deceptive. That is a big step." said Alan Caplan, one of the lawyers who filed the California lawsuit.

NIKE LIKELY TO APPEAL

Nike spokesman Vada Manager said the company was reviewing the ruling and planned to issue a statement. "It is safe to assume that we are going to trying to exhaust all our remedies on this in terms of appeal," he said.

The California high court based its decision on a number of legal precedents, and specifically cited earlier U.S. Supreme Court rulings which held that commercial speech that is false or misleading is not entitled to First Amendment protection and "may be prohibited entirely."

"Commercial speech, because it is both more readily verifiable by its speaker and more hardy than noncommercial speech, can be effectively regulated to suppress false and actually or inherently misleading messages without undue risk of chilling public debate," the court's majority ruling said.

---

The New York Times
May 3, 2002

Court Says First Amendment Doesn't Shield Nike From Suit
By STEVEN GREENHOUSE

California's highest court ruled yesterday that the First Amendment did not shield Nike from a lawsuit accusing it of fraud for asserting that its overseas workers received adequate wages and that its working conditions complied with safety regulations.

The California Supreme Court ruled that the fraud lawsuit should not be dismissed, concluding that Nike's statements about its labor practices were commercial speech that did not deserve full First Amendment protection.

Nike asserted that its defense of its labor practices was political speech and thus deserved full protection under the First Amendment. The company said its statements were part of an international media debate on issues of public interest.

The ruling was the latest effort to distinguish commercial speech, in which businesses can be held liable for false statements, from political speech, in which the speaker enjoys broad protections, even when making false statements.

The lawsuit, brought by Marc Kasky, a Nike critic, accused the company of unfair competition and fraud for stating that its overseas workers earned enough to live on and were paid on average twice the local minimum wage. The lawsuit also accused Nike of fraud for saying in interviews and news releases that its workers were protected from physical and sexual abuse and that its working conditions complied with local laws and safety regulations.

In a 4-to-3 ruling, the court wrote, "Because the messages in question were directed by a commercial speaker to a commercial audience, and because they made representations of fact about the speaker's own business operations for the purpose of promoting sales of its products, we conclude that these messages are commercial speech for purposes of applying state laws barring false and misleading commercial messages."

David Brown, a lawyer for Nike, said the company was disappointed and was considering appealing the ruling to the United States Supreme Court. Mr. Brown emphasized that the ruling was not on the merits. He said it was up to a trial court to determine whether Nike's statements constituted fraud.

In a statement, Nike said the decision "sets a dangerous precedent by restraining companies, such as Nike, from making public statements about their business practices when challenged in the arena of public debate."

Nike said the ruling was especially worrisome because it did not concern paid advertisements but many statements made in response to critics of conditions at its factories in Asia.

Nike praised the dissenting opinion of Justice Ming W. Chin, who wrote,"While Nike's critics have taken full advantage of their right to `uninhibited, robust, and wide open' debate, the same cannot be said of Nike."

The majority decision, written by Justice Joyce Kennard, said a company's statements could be commercial speech even when mixed with a discussion of noncommercial issues.

The court said its ruling "in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices." It said the decision meant only that when a company, to promote its sales and profits, "makes factual representations about its own products or its own operations, it must speak truthfully."

The California attorney general, the Sierra Club and the California A.F.L.-C.I.O. filed briefs against Nike's position, while the Chamber of Commerce and the American Civil Liberties Union of Northern California supported Nike.