In a ruling hailed by corporate-accountability and labor activists, the
California Supreme Court has held that corporations may be liable under the
state's consumer-protection laws for misleading advertising or public statements
about their products or operations.
A majority of four of the seven Court justices ordered the trial court to
proceed with a case brought by Marc Kasky, an activist who charged that Nike,
Inc., made false statements about conditions in Asian factories used to produce
its shoes and apparel in order to counter criticism that the company was using
The case's impact could be sweeping both because most major multinational corporations do business in California and are thus subject to its consumer-protection laws and because a growing number of companies are promoting their wares through similar "image" campaigns.
"This puts corporate greenwashers on notice that what they say needs to reflect
what they actually do, rather than be a diversion from their true practices,"
said Josh Karliner, director of the California-based watchdog group, CorpWatch.
The case, Kasky v. Nike, was initially dismissed by the trial judge who found that Nike's
statements to defend itself against such attacks constituted "non-commercial
speech" and were thus protected by the free speech guarantees in the First
Amendment of the United States Constitution.
The Supreme Court disagreed. "To the extent Nike's speech represents expression of opinion or points of view on general policy questions such as the value of economic 'globalization,' it is noncommercial speech subject to full First Amendment protection," wrote Justice Joyce Kennard for the majority.
But when a corporation makes "factual representations about its own products or
its own operations, it must speak truthfully," Kennard added, noting that such
statements were clearly commercial and hence unprotected speech.
"It's a shock, a great surprise," exulted Jeffrey Ballinger, a labor activist
whose investigations of Indonesian plants where Nike products were manufactured
helped expose the alleged gaps between Nike's claims and actual conditions
Nike, the world's biggest producer of athletic shoes, indicated immediately after the decision, which was made public late last week, that it was likely to appeal the case to the U.S. Supreme Court.
In a press release, Nike said it was "extremely disappointed" with the judgment which, it added, "sets a dangerous precedent by restraining companies...from making public statements about their business practices when challenged in the arena of public debate."
The company--supported in the case by the American Civil Liberties Union and the Pacific Legal Foundation--stressed that Marc Kasky, the principal plaintiff and his attorneys, would still have to prove in court that it's statements were indeed misleading and a violation of the law.
Nike became a major target of labor and anti-globalization campaigners in the mid-1990s both because of its commercial success and the global reach of its production strategy. The Oregon-based company currently has contracts with some 700 plants in more than 50 countries around the world.
In response, Nike launched a wide-ranging public defense of its operations, insisting that its subcontractors were required to respect local labor, environmental, and health and safety laws and regulations.
The corporation hired Goodworks International, a consultancy firm owned by former United Nations Ambassador Andrew Young, to audit some of its factories and then advertised its favorable conclusions in full-page newspaper ads.
But activists charged that these efforts were misleading, and in 1998, Kasky, a California activist, filed suit claiming that Nike engaged in unfair business practices by making false statements about conditions in its Asian factories.
Several labor groups and the Sierra Club were among the organizations that supported the plaintiffs.
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