Two Men Take Nike to Court

One day in 1997, Marc Kasky opened up the New York Times and began reading an article about shoe manufacturer Nike. Nike had opened a Niketown in San Francisco where he lived and he was aware of the protests claiming Nike had sweatshop practices in Southeast Asia.

In the face of these protests, Nike had denied that there was any kind of abuse in their factories and maintained that their "Code of Conduct"--which mandated standards of work safety, health, and compensation--guaranteed that employees were treated well in their factories in Southeast Asia. To bolster their argument, Nike hired an auditing firm, Ernst & Young, to study their plants and determine whether Nike was living up to their standards. When the report came back, Nike kept its contents secret, and continued to maintain that their factories were models of exemplary employee conditions.

When a disgruntled employee leaked a report about a large Vietnamese factory, however, it told a different story. According to the audit, Nike factory workers in Vietnam were exposed to numerous workplace hazards, including toxic chemicals without protection, and illegallly forced to work excess overtime.

Right on its heels, a number of negative reports surfaced, one from the Vietnam Labor Watch documenting widespread abuses, as well as one from Australia and another from the Hong Kong Christian Industrial Committee finding widespread abuse in factories in Indonesia and China.

The story in the New York Times gave Kasky an idea. "When a corporation holds itself out as a model for great behavior, there are many consumers who make their decisions based on wanting to support a company that's setting high standards," he says. "And I believe there were a lot of people buying Nike products based on the reason that Nike was representing themselves in a very positive light. And here it turns out that it wasn't true. So I thought it was blatantly unfair to mislead people, hoping for their support."

Kasky put in a call to a friend, attorney Alan Caplan, who had successfully fought RJ Reynolds in the early 90s, forcing the company to stop using the Joe Camel cartoon character to promote cigarettes to young kids. "I said, 'I've just read this article. Is there something we can do about it?' He said he'd look into it, and he called me back a few weeks later, and said that there was a way that we could take action against Nike." In the spring of 1998, Kasky, with the aid of Caplan, filed suit against Nike for unfair business practice using a controversial California statute that allows an individual to sue companies on the grounds that they have gained an advantage in the marketplace by misleading consumers. Kasky and Caplan also sued under another state statute alleging false advertising.

According to a summary of the facts as established in the California First District Court of Appeals, Kasky's complaint alleged that Nike had in the course of its public relations campaign made a series of six misrepresentations regarding its labor practices:

(1) "that workers who make NIKE products are...not subjected to corporal punishment and/or sexual abuse;" (2) "that NIKE products are made in accordance with applicable governmental laws and regulations governing wages and hours;" (3) "that NIKE products are made in accordance with applicable laws and regulations governing health and safety conditions;" (4) "that NIKE pays average line-workers double-the-minimum wage in Southeast Asia;" (5) "that workers who produce NIKE products receive free meals and health care;" and (6) "that NIKE guarantees a 'living wage' for all workers who make NIKE products." In addition, the complaint alleges that NIKE made the false claim that the Young report proves that it "is doing a good job and 'operating morally.'"

Rather than address these allegations in court, Nike made a simple argument. They claimed the protection of the First Amendment for any of their statements and asked for a dismissal. The trial court agreed with Nike, as did the appellate level. In a 4-3 decision, however, the state Supreme Court found for the plaintiff, holding that the company had engaged in commercial speech with its public relations campaign and that they were thus liable under the state provisions regulating corporate enterprise. The California Supreme Court majority scoffed at Nike's claim that their free speech was being quashed. "Our holding in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices," one Justice wrote. "It means only that when a business...makes factual representations about its own products or its own operations, it must speak truthfully."

Nike appealed to the United States Supreme Court. Both the U.S. Solicitor General as well as the ACLU have filed briefs in support of Nike, while Kasky has had the Sierra Club and the California Attorney General join his side. Oral arguments were presented this week, on April 23.

Many corporations are waiting with baited breath for a decision that should arrive in early summer and could have a huge impact on how they conduct business in California. Currently helping convert an old army base in San Diego into a cultural center, Kasky seems relaxed and says in some ways he has already won. oldSpeak spoke with him late last month about the case that has made him a pariah to the corporate world and a hero to consumer activists everywhere.


oldSpeak: Were you surprised that the Supreme Court took this case?

MK: Not really, because it's an issue of great importance, to not just Nike, but to any corporation that's doing business in California. Because what it says is, if you market your products in California, you must tell the truth in how you market them--how they're manufactured, what their ingredients are, where they're manufactured--all the important facts the consumer would want to know. The current ruling in California says that if you're marketing your products here, you have to tell the truth. It isn't just California corporations that are affected, because almost any national and most international corporations do business here. So, I think the Supreme Court took it because they thought it was important.

The Supreme Court isn't hearing an unfair business and false advertising issue. Nike said, "It doesn't matter whether what we said was true or not. We had First Amendment protection to say whatever we want." They wanted it to be private speech that I was suing them for, and I'm saying it's commercial speech. So the Supreme Court decided I guess that the line between commercial and private speech had not been clearly drawn, and it was important that this time, given the right case, to try to draw that line.

oldSpeak: Is one of the things at issue here whether corporations are protected by the Bill of Rights, whether they count as a person?

MK:That's a bigger issue. Specifically at issue here is whether the speech that Nike was engaged in, in representing this Nike code of conduct, was private speech or commercial speech. Right now, the Constitution does protect a corporation when using private speech. Meaning a corporation can participate in a debate on a public policy issue without fear of being sued. But if it's not private speech--if it's commercial speech--then the states get to regulate business, and they get to regulate unfair business practices and false advertising. The Constitution does not protect a corporation for false advertising or unfair business practice. So the issue here is which one is it?

oldSpeak:In your brief for the Supreme Court, you ask for an injunction and restitution. What sort of injunction and restitution are you seeking?

MK: First of all, you would correct the situation. You want to make sure that what we've accused Nike of doing isn't happening anymore. Then you want to set up some kind of mechanism to ensure that six months from now it doesn't re-occur. Then, the third thing is, you want to identify whether people bought their products based on the representations that Nike made. If those are false, then those people are entitled to some kind of restitution for their purchase. So that's the restitution we're talking about. That there may be some people who made the purchase on a false basis, that were misled into buying the product.

oldSpeak: In light of everything that's happened, wouldn't Nike have been better off having stuck to the argument that the factories were just sub-contractors?

MK: What Nike did was, on one hand, very admirable. Because a lot of corporations have their own codes of conduct, but when charged that their products are made by sweatshops in Southeast Asia, the corporation says, "Well, we have this code of conduct, and we maintain that with all of our employees, and all of our manufacturing plants. But if we hire a contractor, we can't tell them how to treat their employees." So a lot of companies get away with it. Nike went a step further and said, "Not only do we maintain this code, but we require that all of our contractors maintain this code." That was explicit. "They signed a document saying they will do this, and we monitor to make sure that they are doing it." So, Nike really didn't have any way out.

oldSpeak: If you lose at the Supreme Court level, are you worried what kind of an effect that could have? Could it establish a precedent that will hurt consumers in the long run?

MK: Here's the way I look at it. If I win this case and the Supreme Court rules in my favor, Nike wins also, as do other corporations. It would be a signal to the public that they can trust what the corporation tells them when they're marketing their product. That's important for the relationship between companies and consumers. If I lose, Nike loses also. Because what they will have won, essentially, is the right to misrepresent their products--the way they're manufactured, the conditions, and where--to the public. And the public will now be put on notice that you cannot rely on the representations of corporations when they tell you about their products, and that's a loss for the corporations as well.

If the Supreme Court were to rule in Nike's favor, it's telling the buyers to take care of themselves, because the government's not going to defend you in this area. "We're not going to protect you, you're going to be at your own resources to determine whether this is true or not, and whether that's important to you." Ultimately I'm after truth. That's really what this case is about from my standpoint. When corporations say we're going to be afraid to speak in the future for fear of being sued no matter what we say, I say, "If you're telling the truth, you really have nothing to worry about."

oldSpeak: Whether you win or lose at the Supreme Court level, have you achieved some of what you set out to do?

MK: Well, it'll put it into process, into motion. I think that people are much more aware of the issue now. I get calls from people in the media, and I get calls from people who've been working on this issue through different organizations like Reclaim Democracy. There are people in business who I've been speaking to who really are very much in favor of what I'm doing. They're saying, "Keep up the good work."

It gives corporations a bad name when someone's arguing that they have the right to lie. It smears all of them. It really does damage many corporations to have that out there. I feel like a lot's been put in motion already, and I'm not going to stop working on it, regardless. I feel we'll learn a lot from what the Supreme Court decides, and how they decide it. Because it may not be a yes or no, black or white decision. It may be something that says, "Under these conditions, and with these limitations...," or "In situations like this," this can be done, or can't be done. So it's not necessarily going to be "Nike, you're right," or "Kasky, you're right." They don't just vote yes or no, they write opinions. And it's really not the yes or no, but the opinions that guides us, because it's going to affect potentially many, many cases and situations, not just this one.


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