Supreme Court Punts on Corporate Free Speech

Nike hoped for a swoosh at the U.S. Supreme Court but left with an air ball.

Oddly, in a year when the Court took on such major issues as affirmative action and gay rights, it walked away from a chance to clarify the scope of corporate free speech.

In the 1990s, Nike was besieged by critics of its overseas labor practices. Nike defended its conduct through a classic PR campaign that included press releases, letters to newspaper editors, and a mailing to university presidents and athletic directors.

Enter Marc Kasky, a California resident who filed a lawsuit asserting that Nike’s statements were misleading.

California law allows private citizens to act as self-appointed enforcers of our consumer protection laws, the modern day equivalent of privateers. A citizen who believes that a business has engaged in misleading advertising can sue, without involving the Attorney General or District Attorney. If a Superior Court judge agrees, the business can be forced to refund money to all of its customers who saw or read the problem ad, and to pay the plaintiff’s legal fees.

Other states have similar laws, but California is particularly hospitable to this sort of litigation. A plaintiff need not have purchased the product nor been misled. A business can be liable even if it acted in good faith.

Nobody disputes that California law governs TV spots and print ads that tout products or services. But what happens when a company speaks out on a public issue – as Nike did in the context of globalization? Nike’s campaign aimed at defending and bolstering its corporate image as opposed to directly promoting its products.

Last year a divided California Supreme Court ruled against Nike, allowing Kasky’s suit to proceed. Rejecting Nike’s free speech arguments, the state court held that Nike’s public statements regarding its business practices were no different, essentially, than its claims regarding the performance of its running shoes.

All eyes turned toward Washington in January when the U.S. Supreme Court agreed to hear the case. The business community, the Bush Administration, media organizations and the ACLU turned out in support of Nike, arguing that the California Supreme Court’s ruling unfairly muzzled corporate America and would stifle public debate.

But, in an unusual move, the federal court announced at the end of June that it would not rule on the dispute, leaving the California decision intact. Most of the federal justices did not offer an explanation – perhaps, given the press of other cases, they simply ran out of time before leaving for their summer recess.

The Supreme Court’s inaction sparked consternation and disappointment in business and free speech circles.

The Public Relations Society of America asserted that the high court was “out of touch with [the] realities of complex communications in a global society,” and predicted that the “potential for harassment by litigation will effectively prevent most organizations in this country from participating in any kind of significant public discussion and debate on issues vital to our society or even participating in activities that support charitable or community works.”

That assessment seems too dire. Certainly, businesses have reason to be more cautious in their communications that reach the Golden State. Most at risk are high profile companies when speaking on hot button issues such as labor disputes and the environment. PR messages will face increased internal vetting and legal review. Some initiatives, such as Nike’s annual corporate responsibility report, may be shelved.

Any chilling effect on speech is profoundly troubling. But competitive pressures will drive businesses to continue promoting and defending their practices. As unpalatable as the Kasky suit is to Nike, a company cannot afford to button its lips when charged with wrongdoing. Companies will continue to portray themselves as socially responsible and to participate in public debates when consistent with their business interests.

Unfortunately, it may be years before the U.S. Supreme Court provides guidance in this area. In the meantime, with the green light out to California plaintiffs, businesses and PR professionals will have to watch their step to avoid potentially misleading corporate communications, and the tangle of litigation.

Advertising & Marketing Law Update is a publication of Downey Brand LLP