California Apparel News

Beaverton, Ore.–based footwear giant Nike is currently mired in a debate that could affect how companies advertise their products and services, make public statements, and defend themselves against charges of illegal or unethical conduct.

At issue is whether statements made by Nike are protected as free speech under the First Amendment of the U.S. Constitution or are commercial speech, which does not fall under the amendment’s protection.

The case stems from Nike’s response to claims made in the 1990s by anti-sweatshop activists, who said the company was manufacturing products in overseas sweatshops.

In reaction to these claims, Nike hired former U.S. Ambassador Andrew Young in 1997 to evaluate several of its factories in Asia. Young concluded that Nike’s producers were working in adequate conditions. Nike used Young’s report in press releases, letters to editors, letters to university presidents, and other addresses that claimed the manufacturer had maintained safe workplace conditions its Asian footwear factories.

Shortly afterward, San Francisco activist Marc Kasky filed a lawsuit against Nike. The lawsuit alleged that Nike’s responses misled consumers in regards to the working conditions at its factories and that the manufacturer had violated California’s consumer-protection laws prohibiting false advertising.

Nike, in turn, filed a motion to dismiss, arguing that its statements were made in defense of its labor practices and should, therefore, be fully protected as free speech by the First Amendment.

Two lower courts agreed with Nike’s argument and dismissed the suit. But last April, the California Supreme Court said the company’s public-relations campaign was commercial speech and reversed the decision in a 4–3 vote.

California Supreme Court Associate Justice Joyce L. Kennard said: “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.”

Nike said this decision would substantially restrict how companies communicate important information and valuable perspectives on hotly debated social issues— and it would do so far beyond California’s borders.

“The continuing prospect of liability under the Kasky holding casts a genuinely global pall over speech and will continue to cast that pall whatever happens on remand in this case,” a Nike company statement said.

Subsequently, Nike said it would not publicly release its annual corporate-responsibility report, which reviews the initiatives the company has made for labor compliance, community affairs and sustainable development.

Nike appealed the decision to the U.S. Supreme Court, which agreed to hear the case. The Court has not yet determined whether Nike’s statements are commercial speech and whether its statements about worker conditions were truly misleading. A decision is expected next month.

California Apparel News recently spoke with several people from the apparel industry and other industries about the Nike case and its potential effects on business.

Stuart Buchalter Partner Buchalter,Nemer,Fields &Younger We represent a number of California apparel companies that are increasingly taking public positions on environmental, labor or other contemporary issues that are important to their stakeholders—that is, employees, suppliers and shareholders. While those positions may be rooted in social concerns, they usually also have a financial impact upon the company’s operations. To label those public positions as “commercial speech” because of the possible financial impact, and thereby take away the First Amendment’s right to “free speech,” does a disservice to the need for public dialogue on many important issues. If the U.S. Supreme Court’s decision on Nike is upheld, we will be advising clients not to enter into public discussions on social, ethical or other issues, which may have economic attributes.

Ann BrickSpokeswoman American Civil Liberties Union of Northern CaliforniaAlmost anything a business says is likely to have some impact on its bottom line. So if that becomes the basis for defining “commercial speech,” the fear of litigation will discourage businesses from speaking out on issues that directly affect them, thus impoverishing the public debate. Whether to believe one side or the other in a debate about an important public issue is a question to be decided in the court of public opinion, not in a court of law.

Daniel L. JaffeExecutive Vice President of Government Relations Association of National AdvertisersThe Association of National Advertisers believes that the Nike case is one of the most dangerous threats to the ability for corporations to communicate effectively in the U.S. We are very hopeful that the Supreme Court will knock down this decision of the California Supreme Court that has expanded the definition of commercial speech totally out of proportion. If this case does not get knocked down, advertisers and corporations around the country will be severely censored in their ability to communicate to the public.

Marshal CohenSpokesman The NPD Fashion Group Inc. Consumers want to purchase with the knowledge that there is a reason for buying this product. Image and education are an integral part of the more effective advertising in today’s consumer- congested environment. Brands that recognize that they either need to educate the consumer about why they should purchase their product or make a statement to help the consumer identify with the brand are the winners today. The power of the brand is something that takes time and focus, not just a cute commercial or ad. Today’s consumer is all about realism and knowledge. They need to understand the message and relate to it. Today, more and more successful marketing campaigns are about knowledge and stating the reason for the brand’s or product’s existence.

Victor Narro and Kimi LeeCo-directorsGarment Workers Center This case marks a dangerous opening toward giving corporations even more rights than individuals. In today’s global economy, corporations are free to cross borders, placing their production where it can find the lowest wages. Nike is leading the charge that multinational corporations are human beings so that they have an even greater right to lie and escape liability for it. A publicly traded corporation such as Nike is legally mandated to maximize shareholder return. They do it by selling goods. To argue that Nike expended resources to influence public opinion for an ultimate purpose other than furthering profit is in complete contradiction to why it exists as a corporation.

Katie QuanDirector The John F. Henning Center for International Labor Relations at University of California-Berkeley’s Center for Labor Research and Education— Institute of Industrial Relations It is not surprising that Nike would be sensitive about public claims regarding its labor practices. For the past decade, anti-sweatshop activists have accused Nike of sourcing production in sweatshops around the world. Even though Nike and other major manufacturers have taken steps to monitor compliance with their corporate codes of conduct, violations of these labor standards continue to abound.When I was in Indonesia two years ago, I visited a Nike worker in her home who showed me a paystub indicating that she had worked an average of 60 hours of overtime per week (not counting the regular 8 hour work day). When I later confronted a Nike official with this fact, she stated that this was not Nike policy, but she did not contest the veracity of the allegation.January 2001, several hundred workers at a Nike contractor in Puebla, Mexico were fired for protesting rancid food in their factory. Because the Nike products were university-licensed sportswear, student groups in the U.S. swung into action to support the workers. Eventually the workers were rehired and were able to negotiate improvements in their wages and working conditions.These two examples demonstrate how vulnerable Nike is when it publicly claims to consumers that it is upholding labor standards. In both the Indonesian and Mexican cases, the factories had been regularly monitored, but the monitoring had not been effective. Thus compliance with codes of conduct is problematic, and therefore claiming to be compliant is deceptive, and when such claims are used as an advertising tool could be fraudulent.

Nike’ s Side

Since the California Supreme Court reversed the lower-court rulings in Kasky v. Nike, the Oregon-based footwear maker has avoided speaking with the media about the case or about the company in general.

In a rare exception, Nike General Counsel Jim Carter spoke with California Apparel News Manufacturing Editor Claudia Figueroa about the case and its effect on Nike’s communications practices and policies.

In what ways has the definition of commercial speech changed as a result of this case?

The definition of commercial speech hasn’t changed. The California Supreme Court’s expansive application of their statutes to deem Nike’s public statements “advertising” or “commercial speech” without First Amendment protection is the issue at hand. This case involves statements made in a public debate on an important social issue. The statements were not made about products, were not placed on product, and did not speak about product safety or performance qualities, which we all understand to be the kind of advertising or commercial speech that is commonly regulated as commercial speech. We certainly are asking that the U.S. Supreme Court find our statements to be within the core of protected speech—speech that is part of a public debate.

How do you think Nike’s case will affect future commercialspeech rulings?

It is hard to predict future impact absent a ruling by the Supreme Court. However, past precedent of the court has deemed commercial speech as an exception, created for speech that only proposes a commercial transaction. Nike believes that there are plenty of regulatory schemes governing commercial speech and advertising to protect consumers from fraud and misrepresentations.

To what degree will this case change Nike’s advertising and communications policy?

Since our product advertising has always been regulated as commercial speech, we have not made any adjustments to our brand-building efforts. However, in the communications category, since the Kasky ruling from the California Supreme Court, we have reduced the amount of information we provide to Californians, whether by declining speaking opportunities on global issues, interviews with California publications or simply avoiding submission of written materials into California. One pernicious effect of the decision is that we have reduced the amount of information we provide nationwide and even worldwide— for example, to The New York Times and The Economist— because publications and news outlets are read and seen by California’s 34 million residents.

The ACLU, AFL-CIO, many global companies and many major news organizations supported Nike’s position in the case because they believe that consumers are entitled to a rich, robust debate about such issues in the public domain—not in a courtroom. If the Kasky ruling stands, corporations will be less transparent to consumers and the media, and that is unhealthy in a time where the public demands more accountability