Free Speech or False Advertising

Free Speech or False Advertising
Case 5.4 Free Speech or False Advertising?
With annual sales of over $ 19 bill ion and annual profits of around $ 1.9 billion, Nike is one of the giants in the sports apparel business, and its trademark “ Swoosh” logo is recognized around the world. However, for a company its size, Nike directly employs surprisingly few workers— only about 22,000. That is because over-seas contractors manufacture all Nike’s products. These independent contractors employ approximately 600,000 ­workers at 910 factories, mostly in China, Indonesia, Vietnam, and Thailand. Like many other firms, Nike outsources its manufacturing to take advantage of cheap overseas labor. But the price of doing so began getting higher for Nike in the late 1990s, when anti- sweatshop activists started campaigning against the company, charging that the third- world workers making its products were exploited and abused. Activists on many college campuses, for instance, encouraged their peers to boycott Nike shoes and clothing and tried to pressure their universities’ athletic departments not to sign deals with Nike for team sports apparel. Instead of ducking the issue, as other companies might have, Nike responded vigorously to the criticisms. At the University of North Carolina, for example, Nike ran full- page ads in the student newspaper, asserting that it was a good corporate citizen and upheld humane labor standards. It sent representatives to meet with student activists, and company CEO Philip Knight took the unusual step of showing up at an undergraduate seminar on corporate globalization to defend his company. Nike issued press releases and sent letters to many college presidents and athletic departments, asserting, among other things, that Nike paid “ on average, double the minimum wage as defined in countries where its products are produced” and that its workers “ are protected from physical and sexual abuse.” Enter Marc Kasky, a fifty- nine- year- old San Francisco activist. He thought Nike’s campaign was misleading the public about working conditions inside its factories, so he sued the company for false advertising under California’s consumer protection law. In Kasky’s view, the case was simply a matter of protecting consumers from corporate deceit. In response, Nike argued that the statements in question were protected by the First Amendment because they were made in news releases, letters to the editor, and oped essays and because they related to the company’s labor practices— which are a matter of public concern— and not the products it sold. Two lower courts agreed with Nike, but then the California Supreme Court overturned their verdict, ruling in a 4– 3 decision that the company’s campaign was essentially commercial speech ( which generally receives less First Amendment protection than political or personal speech) even though Nike was not specifically talking about shoes. In the court’s view, Nike’s speech was directed at customers and dealt with its business operations; the form in which the information was released was irrelevant. The judges, how-ever, didn’t determine whether Nike really did abuse workers or mislead consumers; it left those factual questions for a trial court to decide. Nike then appealed the case to the U. S. Supreme Court. California Attorney General Bill Lockyer filed a brief in support of Kasky, which seventeen other states joined. The brief con-tended that the case was not about free speech but rather about “ Nike’s ability to exploit false facts to promote commercial ends.” Harvard law professor Laurence Tribe, however, defended the company, arguing that treating Nike’s letters and press releases as equivalent to advertising would under-cut the ability of companies to speak out on political issues. He urged that the California decision would have a “ chilling effect on freedom of speech.” To this, however, the chief author of the California brief, deputy attorney general Roland Reiter, responded: “ I believe the concerns expressed are really overblown. We have a company talking about itself. It’s difficult to see why holding them to the truth would cause any kind of calamity.” USC law professor Erwin Chemerinsky agreed. He argued that it didn’t matter whether Nike issued the information in the form of a press release: “ If a company makes false statements about its product or practices with the intent of increasing profits, that’s commercial speech.” After having heard the case, however, the Supreme Court declined to decide the substantive legal issues at stake. Instead, it dismissed the case on a technicality and sent it back to California for trial. Before the trial began, however, Nike settled out of court with Kasky. As part of the deal, Nike agreed to donate $ 1.5 million to the Fair Labor Association, a sweatshop- monitoring group, and in a joint statement, Kasky and Nike “ mutually agreed that investments designed to strengthen workplace monitoring and factory worker pro-grams are more desirable than prolonged litigation.” A happy ending? Not in everyone’s eyes. Friends of Nike argued that because the Supreme Court did not act forthrightly to protect corporate speech, companies will be reluctant to discuss public issues involving their products. Those on the other side, however, responded that when disclosing information about wages and working conditions, companies should be held to the same standards of truth and accuracy as when they disclose financial data. 85


Discussion Questions
1. In this case, was Nike engaged in commercial speech, or were its statements political or social speech? What determines whether speech is commercial or not?
2. Was the out- of- court settlement a reasonable resolution of this case? What would have been the good or bad consequences of the Supreme Court’s deciding in Nike’s favor? Of its deciding in Kasky’s favor?
3. Should commercial speech receive less First Amendment protection than other types of speech, or does this violate the rights of corporations? Explain your answer.
4. Do corporations have the same moral rights as individual human beings? Should they have the same political rights? Is it morally permissible to limit the speech of corporations in ways that would be wrong if applied to the speech of individual citizens? If it is permissible, is it good public policy?
5. Does Nike have a social responsibility to address matters of public concern such as the working conditions in its overseas operations? If it chooses to do so, does it have an obligation to make its statements as truthful and accurate as it can? Under what circumstances should corporations be held liable for the truth of their public statements?