The Hindu Business Line : The Kasky v. Nike case — How much is a co's word worth?

WHETHER it is pesticide in bottled water or whether alleged environmental damages from copper smelting process, companies often make claims about their conduct. Now the question is, when they are sought to be prosecuted for alleged mis-statements or fraudulent claims, can they claim the protection of `free speech' guaranteed under the Constitution? What is the remedy when the right to `freedom of speech' is abused to plant self-serving liesor propagate myths? Can anything be done to prevent firms from pulling wool over eyes of the public, in general, and stakeholders, in particular, without diluting the freedom of expression enshrined in Article 19 of the Constitution?

As it happens, there is. This objective can be achieved by recognising and interpreting something called "commercial" speech and denying it a high level of constitutional protection.

It is in this context that a study of Kasky v. Nike is of abiding interest. In this lawsuit, Nike Inc. failed to convince the California Supreme Court that California's Unfair Business Practices Act infringed upon the First Amendment "rights" claimed by the company.

The facts of the case of Marc Kasky, Plaintiff and Appellant, v. Nike Inc., Defendants and Respondents, which went against Nike in 2003 after a protracted legal battle, are as follows:

Nike Inc., a marketer of athletic shoes and sports apparel, contracts for the manufacture of its products in countries with low labour costs. The actual production facilities are owned by South Korean and Taiwanese companies that manufacture the products under contract with Nike. The bulk of Nike products are manufactured in China, Thailand, and Indonesia, though some components or products involving more complex technology are manufactured in South Korea or Taiwan. In 1995, a Korean company opened up a major new facility in Vietnam, giving that country also a significant share of Nike's production.

In early 1997, Nike retained a consulting firm, co-chaired by Andrew Young, the former ambassador to the United Nations, to carry out an independent evaluation of the labour practices in Nike factories. After visits to 12 factories, Mr Young issued a report that commented favourably on working conditions in the factories and found no evidence of widespread abuse or mistreatment of workers.

But, according to Kasky, a California activist, Nike was beset in 1996 and 1997 with a series of reports on working conditions in its factories that contrasted sharply with the favourable view in the Young report. An accounting firm's spot audit of the large Vietnamese factory, which was leaked to the press by a disgruntled employee, reported widespread violations of local regulations and atmospheric pollution causing respiratory problems in 77 per cent of the workers. An investigator for Vietnam Labour Watch found evidence of widespread abuses and a pervasive "sense of desperation" from 35 interviews with Vietnamese workers. Nike countered with a public relations campaign that defended the benefits of its Asian factories to host countries and sought to portray the company as being in the vanguard of responsible corporations seeking to maintain adequate labour standards in overseas facilities.

Press releases responded to sweatshop allegations, addressed women's issues, stressed the company's code of conduct, and broadly denied exploitation of underage workers. A lengthier press release, entitled "Nike Production Primer" answered a series of allegations with detailed information and footnoted sources.

Kasky, in his plaint, had alleged that, in the course of this public relations campaign, Nike made a series of misrepresentations regarding its labour practices.

The first and second causes of action, based on negligent misrepresentation and intentional or reckless misrepresentation, alleged that Nike engaged in an unlawful business practice in violation of the Business and Professions Code, Section 17200 by making the above misrepresentations "in order to maintain and/or increase its sales and profits... through its advertising, promotional campaigns, public statements and marketing..."

The third cause of action alleged unfair business practices within the meaning of Section 17200, and the fourth cause of action alleged false advertising in violation of Business and Professions Code, Section 17500.

The prayer sought an injunction ordering Nike "to disgorge all monies" that it acquired by the alleged unlawful and unfair practices, "to undertake a Court-approved public information campaign" to remedy the misinformation disseminated by its false advertising and unlawful and unfair practices, and to cease "misrepresenting the working conditions under which Nike products are made."

Nike and the individual defendants filed demurrers to the complaint challenging the application of Business and Professions Code Sections 17200 and 17500 and contending that the complaint is barred by the First Amendment to the United States Constitution and article I, section 2(a), of the California Constitution. The California Supreme Court basically went with Kasky on the basis of its finding that Nike's statements fit the US Supreme Court's definition of commercial speech because they were aimed at affecting the buying choices of potential customers. "Speech is commercial in its content if it is likely to influence consumers in their commercial decisions," the California ruling stated.

"For a significant segment of the buying public, labour practices do matter in making consumer choices." Having defined the Nike statements as commercial speech, the California court said there was no First Amendment bar against applying the business fraud laws to the statements. Nike moved to take the matter to the US Supreme Court. As it happened, the US Supreme Court refused to rule on whether companies have no protection under freedom of speech guarantees, and whether everything they say can be challenged as commercial speech.

Subsequently, Nike agreed to settle the lawsuit and to pay $1.5 million to the Fair Labour Association — an independent coalition that seeks to improve factory conditions and monitoring. In response, Marc Kasky agreed to withdraw the suit.

Legal analysts in the US, predictably, gave a great deal of attention to the case, and some of them expressed their disagreement with the view of the majority of the California Supreme Court that Nike's statements did, in fact, constitute commercial speech.

Their argument against the ruling of the California Supreme Court rested primarily on the argument that if speech is protected under the First Amendment for those who criticise Nike, then it is unfair that speech is made illegal for the corporation. This argument is foolish — and stands exposed as just that if one takes into account the points on which the majority of the California Supreme Court was in agreement:

Nike was a commercial speaker — a for-profit corporation engaged in commerce;

It addressed its statements to a commercial audience, in specific, potential consumers; and

It did not express opinions but made "representations of fact about (its) own business operations for the purpose of promoting sales of its products."

As it happens, the Supreme Court in the US has, time and again, asserted its opinion that commercial speech deserves less constitutional protection than political speech. The considerations underlying its view are:

According to the Supreme Court, it is easier for the speaker to determine whether commercial speech is true or false. The underlying thinking here is that if a company is talking about its own products, it can reasonably be expected to know what it is talking about. It is, therefore, fair to penalise it if it does not.

On the other hand, as political debate — even among ordinary citizens who may not be experts on the political issues they discuss — should be encouraged, political speech should not be penalised.

Unlike political speakers, commercial speakers are not likely to be dissuaded from speaking just because they may incur penalties as they have to say all kinds of things about their products if they want to sell them.

The issue is related to the government's special powers to prevent "commercial harm" — fraudulent business transactions, the manufacture and sale of toxic or defective products, and so on.

According to the Supreme Court, a politician expounding a manifestly ridiculous idea while making a speech is one matter. It is another matter altogether when a company uses commercial speech to sell a dangerous or defective product, knowing full well that the product is flawed.

The US Supreme Court has, so far, not drawn the dividing line between commercial and political speech. But it will undoubtedly be called upon to do so, given the tendency of virtually all corporations to "spin" the truth.

There is no reason at all why we in India should wait for the US judiciary to tackle this issue.