Posted: September 13th, 2017

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?

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