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NIKE Held Liable For False Sweatshop Claims

by Jim Lobe

NIKE Sued For Allegedly Lying to Public About Sweatshops (1998)
(IPS) WASHINGTON -- An unexpected settlement of a five-year-old lawsuit against Nike, the world's biggest maker of athletic shoes, has left intact a California Supreme Court ruling that corporations can be held liable for public statements they make about their operations.

The case, which was headed for trial after the U.S. Supreme Court declined to rule on the free-speech issue last June, sparked outrage from the business community and some free-speech advocates, including the American Civil Liberties Union (ACLU).

They argued that the California court's ruling, if allowed to stand, would make corporations much more wary about participating in public debate over issues of general concern and, as a result, deny them the free-speech rights enjoyed by individuals and non-commercial organisations.

The settlement, under which Nike agreed to pay $1.5 million to the Fair Labor Association (FLA) -- which monitors compliance with basic labor rights by overseas contractors for major footwear and apparel retailers -- and to make additional investment to strengthen local monitoring efforts, effectively ends the case, leaving the California court decision in place.

While it technically applies only to California, the fact that virtually all major U.S. and foreign multi-national corporations do business in that state means that the court's ruling has been read by corporate executives far beyond the state.

"Everyone says, 'the way California goes, so goes the nation,'" Patrick Coughlin, attorney for the plaintiff Mark Kasky, told IPS. The California court ruling "certainly has a national impact, if not an international one."

The case arose out of the growing public controversy over globalization, specifically the use by U.S. apparel and shoemakers like Nike of overseas factories and assembly plants where, according to activists, working conditions and wages often fail to meet global standards.

With plants in Indonesia and other relatively low-wage countries, Nike, whose sales skyrocketed during the 1980s and early 1990s partly as a result of its advertising success, became a major target of the globalization debate. By the latter half of the decade, it had launched an aggressive public-relations effort to rebut charges that it was using sweatshop labor.

The firm even hired Goodworks International, a company owned by former civil-rights leader Andrew Young, to audit some of its factories and then touted its favorable conclusions in full-page newspaper ads in 1997. It also sent out press releases and letters to the editor to press its case that its workers were neither mistreated nor underpaid.

But activists charged that these claims -- including Goodworks' report -- were not only misleading, but demonstrably untrue. Kasky filed suit in 1998, claiming that Nike had engaged in unfair business practices by making false statements about conditions in its Asian factories.

Under California's tough consumer-protection laws, members of the public are permitted to bring lawsuits to enforce the law without having to prove that they personally suffered as a result of misleading or false statements.

Nike moved to dismiss the case when the court was first assigned to a trial judge, arguing that its efforts to respond to critics amounted to "free speech" rather than "commercial speech," because the subject dealt with a topic of public interest and was not aimed at selling a particular product.

The trial court agreed with Nike and dismissed the case, a ruling that was upheld by a state appeals court.

But in May, 2002, four of the seven California Supreme Court judges overturned the dismissal, arguing that when a corporation makes "factual representations about its own products or its operations, it must speak truthfully."

Writing for the majority, Justice Joyce Kennard said courts should apply a three-pronged "limited-purpose test" to determine whether speech should be considered commercial: the speaker must be engaged in commerce; the intended audience should be actual or potential customers; and the content of the message must be commercial in character.

Corporate-accountability and labor activists hailed the decision as a major breakthrough in countering sophisticated public-relations campaigns by corporations on issues ranging from their treatment of workers to environmental protection.

"This puts corporate 'greenwashers' on notice that what they say needs to reflect what they actually do, rather than be a diversion from their true practices," said Josh Karliner, director of the California-based watchdog, CorpWatch.

But corporations and many free-speech activists were shocked, arguing that the ruling would exercise a "chilling effect" on the willingness of corporations to address key issues in the public domain.

Nike itself noted that it did not issue its annual corporate responsibility report for 2002, a point it reiterated Friday, adding that it will also continue to limit its participation in public events and media engagements in California.

Nike, backed by business groups like the U.S. Chamber of Commerce, the ACLU, U.S. Attorney-General John Ashcroft and media groups worried about being unable to get information from corporations, appealed the California ruling to the U.S. Supreme Court.

But last June, the Court voted in a split decision to dismiss the appeal on the grounds that, while the case raised important issues, the Court needed a "full factual record" that had yet to be developed in pre-trial proceedings.

Jim Carter, Nike's general counsel, stressed that the company still considers its claims to free speech of great importance. "I'm confident that other companies and organisations remain concerned about the continued impact of the California ruling," he said.

"But we're going to go about amending it through a different process, whether legislative or through a different lawsuit," he said.

Nike, he said, decided to settle because "we had no satisfactory means of assuring ourselves that we would get back before the U.S. Supreme Court on the issue that we wanted them to decide, (and the settlement) really gives us the opportunity to see that money that would have been spent on litigating this case goes to benefit workers in the factories."

Coughlin said he was also very pleased with the result and stressed that Nike "had taken the lawsuit seriously, and has done a lot better job over the years" since the suit was filed.

"We have a favorable California Supreme Court decision that should help prevent other corporations from committing unfair business practices and hiding behind the First Amendment as an excuse," he added.

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Albion Monitor September 12, 2003 (

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