Ethical Performance
inside intelligence for responsible business


Nike says CSR ‘gag’ case is barrier to free speech

December 2002

Nike expects to learn this month whether the US Supreme Court will hear an appeal against an unprecedented legal ruling by the Supreme Court of California that has prevented the company from responding to allegations that it uses sweatshops.

Nike says the court in California effectively ruled that a company had no right to defend itself against allegations of irresponsible behaviour and has cancelled publication of its annual corporate social responsibility report, which was due out last month.

Nike’s lawyers have asked the US Supreme Court to hear an appeal against the ruling and expect a response this month, or possibly in January, on whether it will do so.

The California court ruling, delivered in May, was the result of a lawsuit filed in 1997 by environmental activist Marc Kasky, who accused the company of violating state trading and advertising laws by refuting allegations that it used sweatshop labour.

The judges concluded that Nike had made public statements defending its foreign labour practices ‘for the purpose of promoting sales of its products’.

If those statements were subsequently shown to be incorrect, they would infringe state laws barring ‘false and misleading commercial messages’ normally used to curb advertising malpractice and punishable by a fine.

Mallen Baker, development director at Business in the Community, believes the ruling makes ‘even honest disclosure ... a risky business’.

In papers filed with the US Supreme Court, Nike argues that the judgement is ‘profoundly destructive of free speech’ and contrary to the US constitution’s first amendment, which enshrines the right of businesses to discuss public issues.

Nike legal adviser and former acting solicitor general Walter Dellinger said: ‘Handicapping one side in this important worldwide debate is both ill-considered and unconstitutional.’ Statements made by the company anywhere are potentially actionable if they can be read or heard in California, according to Nike lawyers.

Laurence Tribe, a Harvard law professor and the attorney petitioning the US Supreme Court on Nike’s behalf, said the ruling ‘will have considerable adverse consequences for CSR reporting’.

The judges in the California case stress their ruling ‘in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labour practices. It means only that when a business enterprise, to promote and defend its sales and profits, makes factual representations about its own products or its operations, it must speak truthfully.’

There is no suggestion Nike misrepresented the facts when defending its labour practices.

Alice Tepper Marlin, president of US-based Social Accountability International, saw no evidence of other US companies restricting their public statements on CSR.

Adam Kanzer, general counsel at Domini Social Investments, told EP that Nike had a case to argue but was in danger of ‘over-reacting’ to the judgement.

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