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Court Rules that Nike Can’t "Just Do It"
Image Advertising Constitutes Commercial Speech

Public relations executives and legal counsel at corporations desperately directing damage control through public statements, press releases and image advertising should pay close attention to a recent case decided by the California Supreme Court.

Last week, the court held in Kasky v. Nike that Nike’s responses to public criticism constituted commercial speech for purposes of applying state laws barring false and misleading commercial messages. Although case law recognizes that corporate statements may not be regulated so long as they are non-commercial, defining the messages as commercial speech denies them the same level of constitutional protection.

A California resident who alleged that Nike made statements to Californians that were false and misleading about its labor practices and about working conditions in factories that made its products filed the lawsuit. Specifically, in press releases, in letters to newspapers, and in other documents distributed for public relations purposes, Nike made statements that it found no evidence of illegal or unsafe working conditions at Nike factories in China, Vietnam, and Indonesia.

Plaintiff ‘s complaint called for Nike to "disgorge all monies . . . acquired by means of any act found . . . to be unlawful and/or unfair business practice," and to "undertake a Court-approved public information campaign" to correct any false or misleading statement, and to cease misrepresenting the working conditions under which Nike products are made. Nike’s defense included the argument that the relief plaintiff was seeking "is absolutely barred by the First Amendment to the United States Constitution and Article I, section 2(a) of the California Constitution."

The trial court and court of appeals characterized the messages as noncommercial speech. The California Supreme Court reversed (4-3), relying on U.S. Supreme Court precedent to characterize Nike’s messages as commercial speech.

Adopting a "limited purpose test," the court specified the parameters that define commercial speech by requiring consideration of three elements: the speaker, the intended audience, and the content of the message. Applying this test, the court found that "the messages in question were directed by a commercial speaker to a commercial audience, and … they made representations of fact about the speaker’s own business operations for the purpose of promoting sales of its products." The court added: "Nike’s speech is not removed from the category of commercial speech because it is intermingled with noncommercial speech . . .. Nike may not ‘immunize false or misleading product information from government regulation simply by including references to public issues.’ . . . Here, the alleged false and misleading statements all relate to the commercial portions of the speech in question–the description of actual conditions and practices in factories that produce Nike’s products–and thus the proposed regulations reach only that commercial portion."

In a strongly worded dissent from the slim California Supreme Court majority, Justice Chin argues that the public has a right to receive information on matters of public concern and that the corporate identity of the speaker should not deprive the speech of its "clear entitlement to protection." Justice Chin further states that "characterizing Nike’s speech here as commercial speech is inconsistent with the high court’s constitutional jurisprudence . . .." Justice Brown, in a separate dissent, calls upon the U.S. Supreme Court to resolve the "chaos" it has created because it "has expressly refused to define the elements of commercial speech."

While non-commercial speech is afforded the highest level of constitutional protection from governmental intervention, regulation of commercial speech has traditionally been subjected to a lower level of judicial scrutiny. But distinguishing between the two types of speech is not always easy. The precise boundary between commercial and noncommercial speech has not been clearly defined. The Supreme Court has defined commercial speech as speech that does "no more than propose a commercial transaction." Central Hudson Gas & Elec. V. Public Serv. Comm’n, 447 U.S. 557 (1980).

It has been more than 25 years since the Supreme Court first afforded commercial speech First Amendment protection. In Virginia Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 765 (1976), the Supreme Court held that commercial speech receives First Amendment protection, stating that "[i]t is a matter of public interest that [economic] decisions, in the aggregate, be intelligent and well-informed. To this end, the free flow of commercial information is indispensable." But the Court went on to note that "[u]ntruthful speech, commercial or otherwise, has never been protected for its own sake." Even under earlier case law where the Supreme Court extended First Amendment protection to non-commercial expressions, including expressions that are false or misleading provided they are made without actual malice, the Court refused to afford similar protection to deliberate lies. See New York Times Co. v. Sullivan, 376 U.S. 254 (1964).

Just last week the Supreme Court re-articulated its Central Hudson test regarding whether a particular commercial speech regulation is constitutionally permissible. In Thompson v. Western State Medical Center, 535 U.S. --- (2002), the Court stated that "[u]nder the test we ask as a threshold matter whether the commercial speech concerns an unlawful activity or is misleading. If so, then the speech is not protected by the First Amendment."

With corporate damage control arguably at an all-time high, it is high time for the United States Supreme Court to provide a bright line test to determine whether a company’s comment on an issue of public debate is non-commercial speech or whether it is commercial speech subject to restrictions by state and Federal governments.

The Nike case is remanded back to the lower court for a determination of whether Nike’s statements were false or misleading. Nike’s attorney, David Brown of the San Francisco firm of Brobeck Phleger & Harrison, said it was likely his client would seek review at the U.S. Supreme Court.

To download the decision in Kasky v. Nike, please click here.

[Posted on May 10, 2002]

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