WASHINGTON - Multinational corporations that sell their goods in California--and there are very few that do not--will have to remain cautious about their advertising and public statements for the foreseeable future as a result of Thursday's decision by the U.S. Supreme Court to dismiss an appeal by athletic apparel giant, Nike Inc., of a California supreme court decision last year which shocked the corporate world.
While in a dissenting opinion, three justices indicated sympathy for Nike's appeal, the Court majority decided it was too early to take up the free-speech issues raised by Nike, Inc. v. Kasky and sent it back to California where pre-trial maneuvers remain to be played out.
The case is being closely watched by corporate public-relations departments, free-speech advocates, and globalization activists throughout the United States and beyond. It hinges on whether Nike's efforts to respond to public attacks on its overseas operations amounts to "free speech," which is protected by the First Amendment of the U.S. Constitution, or "commercial speech," which is not.
Activist Marc Kasky poses after an interview in downtown San Diego Thursday, June 26, 2003. The U.S. Supreme Court refused Thursday to decide whether sneaker giant Nike's corporate ads and statements are protected by the Constitution's right to free speech, saying that while the case raised an important issue, it didn't belong before the high court now. The action is not a ruling on the merits of Nike's claims, but it apparently means Kasky can continue a lawsuit against the company. Nike had argued that private individuals cannot use the courts to police what companies say about themselves. (AP Photo/Denis Poroy)
The case arose out of the growing public controversy over globalization, specifically the use by U.S. apparel and shoemakers like Nike of overseas factories and assembly plants where, according to labor activists, working conditions and wages often fail to meet the core labor standards set forth by the International Labor Organization (ILO).
Nike, whose sales skyrocketed during the 1980s and early 1990s, due partly to its phenomenal success in advertising, found itself a major target of the globalization debate and launched an aggressive public-relations effort to rebut attacks by social and labor activists against it by the latter half of the decade.
The firm even hired Goodworks International, a consultancy company owned by former UN Ambassador Andrew Young, to audit some of its factories and then touted its favorable conclusions in full-page newspaper ads in 1997. It also sent out press releases and letters to the editor and other forums to deny that it was mistreating or underpaying workers at foreign plants.
But activists charged that these claims--and Goodworks' audit--were not only misleading, but demonstrably untrue. In 1998, environmentalist Marc Kasky filed suit claiming that Nike had engaged in unfair business practices by making false statements about conditions in its Asian factories on at least six occasions.
Under California's tough consumer-protection laws, the most far-reaching in the U.S., members of the public are permitted to bring lawsuits to enforce the law without having to prove that they personally suffered as a result of misleading statements.
The trial court sided with Nike's contentions that its efforts to respond to the critics amounted to "free speech," rather than "commercial speech," because the subject dealt with a topic of public interest and was not aimed at selling a particular product. A California appeals court upheld the lower court's dismissal.
But in May, 2002, four out of the seven California supreme court justices disagreed. When a corporation makes "factual representations about its own products or its operations, it must speak truthfully," wrote Justice Joyce Kennard for the majority.
She said courts should apply a three-pronged, "limited-purpose test" in determining whether speech should be considered commercial: the speaker must be engaged in commerce; the intended audience should be actual or potential customers; and the content of the message must be commercial in character.
"Speech is commercial in its content if it is likely to influence consumers in their commercial decisions," she wrote. "For a significant segment of the buying public, labor practices do matter in making consumer choices."
Two of the three dissenters assailed the decision as fundamentally unfair. "If Nike utters a factual misstatement, unlike its critics, it may be sued for restitution, civil penalties and injunctive (relief)," they wrote. "When Nike tries to defend itself from these attacks, the majority denies it the same First Amendment protection Nike's critics enjoy."
Corporate-accountability and labor activists hailed the decision as a major breakthrough in countering sophisticated public-relations campaigns by corporations on issues ranging from their treatment of workers to environmental protection. "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 corporate watchdog, CorpWatch.
But many free-speech activists were shocked. "It essentially shuts business speakers out of the public debate on any issue that affects them," said Ann Brick of the American Civil Liberties Unions (ACLU) which has supported Nike's position. "That kind of analysis is antithetical to the basic First Amendment principle that we let the people, not the government, decide who's right and who's wrong on an issue of public dispute."
In appealing to the Supreme Court, Nike had a lot of support, including business associations like the Chamber of Commerce, the ACLU, and media organizations that argued that upholding the California decision would exercise a "chilling effect" on the willingness of corporations to address key issues in the public domain. In a teleconference Thursday, Nike spokesman Vada Manager noted that the company has not issued its annual corporate responsibility report for fear of liability.
Even the AFL-CIO labor confederation filed a brief on behalf of Nike's free-speech claims, although it opposed the company on the factual claims regarding its labor practices.
With so much attention paid to the outcome, Thursday's dismissal came as an anti-climax, if not a major disappointment to corporations doing business in California. "We look at the opinion as certainly not resolving what we had hoped to have resolved today," said Jim Carter, Nike's general counsel in a press teleconference after the decision was announced.
Writing for three of the justices who preferred to dismiss the case for now, Justice John Paul Stevens indicated that the case was an important one and further noted that "the speech at issue represents a blending of commercial speech, noncommercial speech and debate on an issue of public importance." But, he went on, in the absence of a "full factual record" as would be developed in pre-trial proceedings, as well as the trial itself, it was "premature" for the Court to rule on the key constitutional issues.
In a lengthy dissent written on behalf of himself and two other justices, Justice Steven Breyer insisted that he could "find no good reason for postponing a decision in this case," particularly in light of "the importance of the First Amendment concerns at stake." He predicted that Nike would eventually prevail on its First Amendment claims.
In its reaction, Nike pointed out that all of the six justices who signed Thursday's opinions appeared to find that, at the very least, the speech at issue could not be considered purely commercial. It claimed this amounted to a rejection of the California supreme court's central holding.
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