What would you do? Nike V. Kasky case puts public relations campaigns under new scrutiny

Communication World, April-May, 2003 by Allan Jenkins

Scenario: Your New York-based company has led the effort in your industry for environment-friendly practices. Now your CEO is named "Green CEO of the Year" by a Canadian environmental protection group.

Do you issue a press release and give the award star billing in your annual Environmental Report? Or do you advise your CEO to grant no interviews, make no statements and say nothing at the awards ceremony?

Scenario: After its own investigation, an activist group uses full-page ads to accuse your company of exploitative labor practice in Poland. The company's investigators find the charges to be untrue. An independent third-party labor auditor finds them untrue. The Polish government states that your company is in compliance with national law.

Do you refute the charges when queried, citing the investigations? Or do you answer, "No comment?"

Depending on the outcome of Nike v. Kasky, a case now before the United States Supreme Court, you may find yourself saying "no comment" much more often because it will be the only way to avoid lawsuits in California for false advertising.

HOW DID WE GET TO THIS POINT?

To know why, we first look back to 1996. Nike, an athletic-shoe maker, was widely accused of ignoring its contractors' alleged exploitative labor practices in Southeast Asia. Several charities and activist groups cited instances of workers being subjected to long working hours, sexual harassment and unsafe working conditions.

Nike countered with public statements showing that it required all contractors to sign, abide by and document compliance with a Memorandum of Understanding that commits its contractors to follow all local laws about wages, benefits, child labor, equal opportunity, working conditions, etc.

In 1997, the company asked Andrew Young, a U.S. civil rights leader and former United Nations ambassador, to carry out an independent audit of Nike contractors' labor practices. Young examined 12 factories and reported favorably for Nike, finding no evidence of widespread abuse or mistreatment, but did comment that Nike could do better.

Yet the accusations continued. By mid-1997, news outlets across the U.S. were asking if Nike was indeed exploiting--or allowing others to exploit--workers making its footwear.

Nike responded with a major public relations effort, citing the rules it expected contractors to follow, referencing reports from auditors and citing the Young Report. As one part of that effort, it published advertisements in major papers to make its case.

Those advertisements caught the eye of Marc Kasky, a California resident and community activist. Kasky believed that the advertisements and other statements made by Nike were misleading.

Kasky sued Nike, under a California law whereby any citizens can sue--in a so-called "strike suit"--companies they believe are violating the California Business and Professions Code. The plaintiff need not have been injured by the company or its statements. Nor does the plaintiff need to be a customer of the company. And the company does not need to be California based; it need only do business there (Nike is based in Oregon). Further, the statements in question do not need to have been made in California. Accessibility by a Californian is sufficient.

Kasky alleged that Nike had violated California law by making negligent or reckless misrepresentations "to maintain and/or increase its sales and profits...through its advertising, promotional campaigns, public statements and marketing."

He asked the court to order Nike to 'disgorge all monies" that it had acquired as a result of the alleged misrepresentations, and to carry out a court-supervised public relations campaign to correct the alleged misrepresentations.

At trial, the judge dismissed Kasky's suit, ruling that Nike, in responding to accusations about work practices, was exercising its right to protected free speech. Such freedom of speech, guaranteed under the First Amendment of the U.S. Constitution, does not make the speaker liable, except in the case of libel. In other words, Kasky could not sue.

Because the judge decided Nike's speech was protected, he ruled that there were no grounds to try the validity of the allegations.

WHAT QUALIFIES AS COMMERCIAL SPEECH?

Kasky appealed to the California Court of Appeals. That court also rejected Kasky's suit, saying that Nike's statements were part of a "poublic dialogue on a matter of public concern...protected by the First Amendment." The court warned Kasky that he was unlikely to prevail in an appeal to a higher court.

But Kasky did appeal to the California Supreme Court. In a 4-3 decision last year, that court agreed with Kasky, and ordered the case remanded to the California Court of Appeals. In its order, the court majority said that although Nike's noncommercial speech on issues of "general policy" are protected, the company loses that protection when the speech "concerns facts material to commercial transactions--here, factual statements about how Nike makes its products."

The majority ruled that Nike's statements were commercial speech--and thus not protected by the First Amendment guaranteeing freedom of speech--because the statements failed three tests.