The California Supreme Court has ruled that sports powerhouse Nike Inc. can be sued for deceptive advertising if it makes misleading claims as part of a public relations campaign designed to burnish its corporate image.
The 4-3 ruling could mean trouble for scores of corporations that engage in such "greenwashing" campaigns. The court's ruling establishes that such campaigns amount to advertising -- not free speech, as Nike had argued -- and are therefore subject to the same legal controls as advertising.
"Such representations, when aimed at potential buyers for the purpose of maintaining sales and profits, may be regulated to eliminate false and misleading statements because they are readily verifiable by the speaker and because regulation is unlikely to deter truthful and nonmisleading speech," Justice Joyce Kennard wrote in the court's majority ruling.
Under California's broad consumer-protection laws, a company can face penalties and restitution claims if it is found to have knowingly included false or misleading information in its commercial speech.
"It lets advertisers know their products can't be promoted with false statements ... under the guise of, 'This is a matter of public debate,' " says Alan Caplan, an attorney for Marc Kasky, a San Francisco-based activist who brought the suit considered by the state's high court. "The statements are going to have to be truthful or they can be sued."
Kasky says the decision is "a signal to a lot of corporations that might not have the resources Nike has to challenge something like this" to think carefully before playing fast and loose with the truth in their corporate communications. But Ann Brick, an attorney for the Northern California ACLU who filed a legal brief backing Nike, says the ruling "disregards the basic First Amendment principle that we allow the people, not the government, to decide who's right and who's wrong on issues of public dispute."
"It could easily trigger a flood of lawsuits and for that reason it can have a huge chilling effect on the ability of businesses to speak out on important public issues that directly affect them," Brick argues. David Brown, an attorney for Nike, says the Oregon-based corporation may ask the US Supreme Court to consider the decision.
The question of whether Nike actually presented false information in its public relations campaign must still be determined by a lower court. Kasky filed suit against Nike after reading the company launched a public relations campaign responding to news reports about conditions at plants making Nike shoes in Southeast Asia.
The news reports alleged dangerous chemical exposure, physical abuse, and substandard wages in the Asian factories under contract to Nike. The company penned press releases and letters to newspapers and sponsors claiming it had cleaned up its act. But an audit commissioned by the company itself and leaked in 1997 indicated the abuses had not abated.
While a lower state court threw out Kasky's suit, ruling that Nike was simply exercising its right to free speech, the high court's decision has given new life to the case. If Nike is found to have lied in its public relations efforts, the company could be forced to turn over millions in profits it has made in California.