Nike Can’t Just Say It, Court Rules

SAN FRANCISCO —  Corporations can be found liable for deceptive advertising if they make misleading public statements about their operations and conduct, the California Supreme Court ruled Thursday.

In its 4-3 decision, the court said Nike and other corporations are not protected by the First Amendment when they present as fact statements about their labor policies or company operations in advertisements, press releases, letters to the editor or public statements.

“If a company is going to issue press releases or any information to the consumer about their factories, they are going to have to tell the truth,” said Alan Caplan, the plaintiff’s attorney in the case. “That shouldn’t upset any corporation.”

The ruling is expected to increase public scrutiny of corporate image campaigns. But critics said it also will prevent businesses from engaging in pubic debate on isues that affect them.

No other state high court is believed to have ruled in such a case, and a Nike lawyer said the firm is likely to appeal to the U.S. Supreme Court.

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,” the company said in a statement.

The court’s ruling came as a result of statements Nike made to defend itself against charges that its products were made in Third World sweatshops.

Several media outlets published critical stories about working conditions in Asian factories where Nike’s athletic shoes are made, prompting Nike’s response. A San Francisco activist contended that Nike lied in its press releases and letters to newspapers and athletic directors, and sued the company for false advertising.

The corporation argued that its statements were protected by constitutional guarantees of free speech. Lower courts agreed and dismissed the lawsuit.

The state high court, however, said Thursday that the statements were commercial in nature and subject to a broad California law that prohibits misleading advertising.

When a corporation makes “factual representations about its own products or its own operations, it must speak truthfully,” Justice Joyce L. Kennard wrote for the majority.

Without deciding whether the athletic shoe and apparel maker lied in its statements, the court revived the lawsuit, which could lead to a trial and possible restitution.

Justices Ming W. Chin, Marvin Baxter and Janice Rogers Brown vehemently dissented.

Chin complained that the ruling unfairly protects the free speech rights of private critics of corporations but not corporations that defend themselves from attacks.

“If Nike utters a factual misstatement, unlike its critics, it may be sued for restitution, civil penalties and injunctive relief,” wrote Chin, whose dissent was signed by Baxter.

Brown, in a separate dissent, said the majority’s decision fails “to account for the realities of the modern world--a world in which personal, political and commercial arenas no longer have sharply defined boundaries.”

“Nike’s commercial statements about its labor practices cannot be separated from its noncommercial statements about a public issue because its labor practices are the public issue,” Brown wrote.

Labor and environmental groups presented arguments against Nike in the case, Kasky vs. Nike, while the American Civil Liberties Union sided with the corporation.

The case arose in 1996 with a report on “48 Hours,” the CBS television news program, about conditions in factories under contract with Nike in Southeast Asia. Articles about the workers who make Nike shoes also appeared in several newspapers.

The stories cited claims that the workers were paid less than the applicable minimum wage, required to work overtime, subject to physical, verbal and sexual abuse and exposed to toxic chemicals.

Nike countered in public statements, ads and letters that the factory workers were paid in accordance with local labor laws and on average received double the minimum wage plus free meals and health care.

Marc Kasky, 57, who has managed a foundation that preserves San Francisco’s Ft. Mason, decided to sue Nike after reading an article in the New York Times about the company’s contract factories.

If Kasky ultimately prevails at trial, Nike could be ordered to turn over an unknown amount of profits it has made in California. The money then could be distributed either to charities or to consumers who bought Nike products, lawyers said.

The state high court relied on U.S. Supreme Court precedents to distinguish speech that is protected by the 1st Amendment from commercial speech, which government can regulate and ban if it is false.

The California court said speech can be commercial even if it is not in the form of an advertisement.

Communications are subject to government regulation if they are made by a commercial speaker, such as an officer of a company, intended for a commercial audience and contain representations of fact that are commercial in nature, Justice Kennard wrote for the majority.

‘Labor Practices Do Matter’

“Speech is commercial in its content if it is likely to influence consumers in their commercial decisions,” Kennard wrote.

“For a significant segment of the buying public, labor practices do matter in making consumer choices.”

At the same time, she said, the ruling “in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices.”

Nike, in a press release, said it was “extremely disappointed” by the ruling and stressed that the accusations are unproven.

The manufacturer also said it has made significant progress in its contract factories since the lawsuit was filed in 1998.

The company, which has contracts with more than 700 factories in more than 50 countries, said it forbids child labor and has raised wages by more than 40% over the last several years for entry-level workers in Indonesian shoe factories.

Caplan, an attorney for Kasky, said the ruling will affect corporate public relations across the country.

“They can’t say, ‘We are issuing this for everybody’s ears except those people under California Supreme Court jurisdiction,’” Caplan said.

Al Meyerhoff, a plaintiffs’ lawyer who also worked on the Kasky case, said corporations should be held accountable if they lie.

“If companies are claiming their goods are manufactured under certain conditions--no clear cutting or organic food or free from child labor--if those statements are being made, they should be true,” Meyerhoff said.

But Ann Brick, an attorney with the ACLU of Northern California, declared that free speech was “the loser” in the case.

“Its impact could be very broad,” Brick said. “If you are a business speaker, your ability to speak out on a public issue that directly affects your company is dramatically affected.”

Ruling Could ‘Open a Business to Extortion’

The 1st Amendment dictates that “it’s the people, not the government, who gets to decide which side is right” in a public debate, she said.

Fred J. Hiestand, general counsel for the Civil Justice Assn. of California, said the ruling will limit corporations’ ability to defend themselves against false charges and expose them to undue pressure from interest groups.

“I think it would open a business to extortion,” said Hiestand, whose group represents a coalition of business interests and others that promote tort reform.

Lester L. Jones, a partner in the Los Angeles office of Littler Mendelson, the nation’s largest corporate employment law firm, said the decision creates an uneven playing field for business.

“This case has the potential to place a chill on the rights of an employer to defend itself in the court of public opinion,” Jones said.

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Times staff writers Nancy Cleeland and Lisa Girion contributed to this report.