Organic Consumers Association

Nike Backs off in "Right to Lie" Sweatshop Case

From <>
The Weekly Spin 9/17/03

"Nike said today that although it has settled the suit brought
against it by California consumer activist Mark Kasky, it still
intends to curtail its corporate PR efforts, including the
continued suspension of its social-responsibility reporting
initiative," PR Week reports. "Despite the settlement, which was
announced this morning, Nike said it does not plan to ramp up the
PR activities that had been curtailed because of the pending
lawsuit. ... Nike has also decided not to issue its
corporate-responsibility report for fiscal year 2002." The suit
stemmed from a Nike campaign to defend itself from charges that it
used sweatshop labor. Kasky sued Nike in 1998 under California
truth-in-advertising laws saying Nike's claims were false. Nike
said its statements on its overseas factories are protected speech.
The California Supreme court, however, disagreed with Nike, saying
its campaign did qualify as commercial speech. The US Supreme court
decided not to rule on Nike's appeal. Nike admits no liability with
the settlement that will see $1.5 million dollars going to the Fair
Labor Association.
SOURCE: PR Week, September 12, 2003
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From The Wall Street Journal
September 14, 2003
Nike Settles Case
With an Activist
For $1.5 Million


After losing a U.S. Supreme Court appeal over a case debating the constitutionality of commercial speech, Nike Inc. Friday settled with California activist Marc Kasky, in a deal that obliges the footwear company to pay $1.5 million during the next three years to a Washington worker-rights group.

Under the settlement, the Fair Labor Association will use the funds to promote workers' education, increase training and help create a global reporting standard for factory working conditions. The money also will go toward monitoring factory processes, which will directly affect some of Nike's employees in China, Vietnam and Indonesia. The FLA includes 179 universities, human-rights organizations, consumer groups and companies.

Nike , of Beaverton, Ore., admitted to no liability under the terms of the settlement. Both parties however, expressed relief at ending a legal dispute that went on for nearly five years.

"The main thing Mr. Kasky wanted was a change in practices by Nike , which happened," said his attorney, Patrick Coughlin. "And the money that will go to the FLA is a good way to develop corporate responsibility." Added Nike vice president and general counsel Jim Carter, "It's an opportunity to put $1.5 million through to the FLA to help them do their work in the factory monitoring process better, which is clearly better than spending money on the case."

While the suit between Mr. Kasky and Nike may be settled, the implications for U.S. businesses as well for the legal definition of commercial speech remain unclear.

In April 1998, Mr. Kasky filed a suit under a California consumer-protection law aimed at eliminating unfair competition. Mr. Kasky claimed that statements made by Nike about working conditions at its Asian factories misled the public and amounted to false advertising. The suit was dismissed in two lower California courts. But the state's highest court ruled that Nike's campaign addressing its critics, which included press releases, letters to the editor, and a report filed by Andrew Young, former ambassador to the United Nations, amounted to a form of commercial speech. Commercial speech receives a lower standard of protection under the First Amendment than noncommercial speech.

The resulting U.S. Supreme Court case was closely watched, as companies hoped for a definitive decision on what constitutes commercial speech. But the court's June 26 decision -- to pass the case back to a California state court on technical grounds -- left the issue unresolved.

"Until the Supreme Court resolves the issue, companies will have to factor in the possibility that they may be held accountable in California courts for what they say on matters of public concern," said First Amendment attorney David H. Remes, a partner at Covington & Burling in Washington, who wrote friend-of-the-court briefs supporting Nike on behalf of six companies including Exxon Mobil Corp., Bank of America Corp. and Microsoft Corp.

U.S. companies will respond warily, but that may not be a bad thing, said New York University law professor Burt Neuborne. He said he expects companies to take more care in the kind of information they release or "less risk-taking, where companies won't disseminate anything at all." Nike said Friday that the lack of a decision over what protection a company has in the process of making public statements will alter its information-disclosure policy "into the foreseeable future."

"We are still restrained and will continue to be restrained to fully engage in the kinds of discussion that are at the heart of the allegations in this case," said Nike's Mr. Carter. The company will limit media events in California and won't publicly release its corporate responsibility report for fiscal 2002.

Further clouding the muddy free-speech waters is the acknowledgment from justices in both California and federal courts that Nike's campaign contained elements of commercial and noncommercial speech. The lack of a decision has left "no clear road map in sight" for U.S. companies, says NYU's Mr. Neuborne. "This settlement provides absolutely no guidance in an area that is completely confused," he said. "Basically, this doesn't help us out of the swamp."

As part of the settlement, Nike agreed to honor its existing commitments at all its foreign facilities to after-hours worker-education programs and to support small-loan programs for workers at a minimum of $500,000 during the next two years.

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