NEW YORK — The Nike Inc. case just accepted by the U.S. Supreme Court will weigh free speech protections for corporations — and possibly write new ones.

But the case started out on a different legal track — as a claim of false advertising against the sporting goods giant.

Marc Kasky, a San Francisco activist, said he decided to sue Nike in 1997 after reading in The New York Times about an Ernst & Young audit, commissioned by Nike, that found employees in a large Vietnam sneaker contractor were exposed to cancer-causing toluene and suffered a high rate of respiratory problems.

The audit was leaked to reporters that November by a nonprofit group called Transnational Resource & Action Center, now known as CorpWatch. The Ernst & Young labor and environmental audit, along with a CorpWatch independent analysis and photos from inside the Vietnam factory, had made the Times’ front page.

Nike has stood by its treatment of factory workers and their working conditions throughout the ordeal. Nike endorsed athletes, however, have not publicly aired their views.

Kasky, speaking Tuesday from his San Francisco home, said the story made him uneasy. He wondered why Nike had been touting its work improving conditions and wages at apparel and footwear contractors when the audit showed otherwise.

"Nike was holding itself out as a model corporate citizen," said the 58-year-old Kasky, who professionally helps cities transform old military bases into community cultural centers. "The article indicated that a lot of the standards Nike was claiming were not true. I felt like there were a lot of people in California like me who supported Nike because they supported its code of conduct [mandating contractor standards]."

Kasky contacted lawyer Alan Caplan, a friend with whom he worked in the late Sixties in Cleveland as a Volunteers In Service to America volunteer. Caplan had fielded Kasky’s concerns in the past and on his behalf spurred an earlier class-action lawsuit using California’s tough false-advertising regulations against Perrier after the company acknowledged putting carbonation in its bubbly water.

Another time, Kasky said he enlisted Caplan’s help to bring a class-action suit against a frozen food maker who touted its vegetables as being "California style" when, in small print, the packages said the food came from Mexico. Both cases were settled out of court for undisclosed sums.In the Nike case, Kasky sued individually under California law regulating unfair competition and false advertising. The law states it’s unlawful to disseminate advertising "which is untrue or misleading and which is known, or which by the exercise of reasonable care should be known to be untrue or misleading."

The Nike lawsuit, filed in April 1998, garnered some attention in newspapers as yet another challenge to Nike’s image. The case became fodder for Internet bulletin board discussions as a classic example of "corporate greenwash," where companies are accused of dressing up their record to obscure the truth.

Among other things, Kasky’s lawsuit disputed Nike’s public claims that workers who make Nike products are protected from corporal punishment and/or sexual abuse and that the company’s products are made in accordance with regulations governing wages and hours, with average line workers making double the minimum wage in Southeast Asia while receiving free meals.

Kasky’s suit also contrasted the results of the Ernst & Young audit with that of civil rights leader Andrew Young, hired by Nike to undertake a review of contractor conditions. Young’s GoodWorks International concluded Nike is doing a good job and "operating morally," and that a "living wage is guaranteed for all workers who make Nike products."

However, when it came time for the Kasky lawsuit to be heard in state court, Nike turned the case from one claiming false advertising to a case involving whether a corporation’s defense of its worker rights record is protected by First Amendment free speech protections.

Nike’s free speech argument succeeded at the trial court level, as well as with the Court of Appeals of California. However, when Kasky appealed the case to the California Supreme Court, the judges there took Nike’s free speech argument and used it to side with Kasky on the false advertising claim in May 2002.

A divided state Supreme Court, voting 4 to 3, found the company’s public relations campaign was unprotected commercial speech that violated the state’s strict ban on false advertising.

"Because in the statements at issue here Nike was acting as a commercial speaker, because its intended audience was primarily the buyers of its products and because the statements consisted of factual representations about its own business operations, we conclude that the statements were commercial speech for purposes of applying state laws designed to prevent false advertising and other forms of commercial deception," wrote Justice Joyce Kennard for the majority.The majority created a three-part test for California trial court judges to define commercial speech. Commercial speech occurs, the majority said, when the speaker is engaged in commerce, the audience is actual or potential customers and the content is commercial in character.

This test, the majority wrote, wouldn’t apply to Nike’s "expression of opinion or points of view on general policy questions, such as the value of economic globalization," which would be protected by the First Amendment. However, "Nike’s speech loses that full measure of protection only when it concerns facts material to commercial transactions — here, factual statements about how Nike makes its products."

To argue the state Supreme Court’s decision to the U.S. Supreme Court, Nike has hired top legal guns Laurence Tribe of Harvard University and Walter Dellinger, a top Clinton administration constitutional adviser.

Nike’s quest for the court to grant First Amendment protections to its defense of poor-worker-rights allegations has garnered backing from 32 media companies,such as The New York Times, The Tribune Co., Hearst Corp. and CNN, which have filed friend-of-the-court briefs on Nike’s behalf. Until now, corporate speech has been granted lesser free speech protections.

It is "highly unusual" for the U.S. Supreme Court to take up a case that has never been tried, said Michael Rubin, a California attorney who represented Saipan workers in a sweatshop case against retailers settled last year. "A significant proportion of cases that have gone before the court have [gone to trial]."

As Rubin sees it, the court could do one or all of the following:

Decide that the Nike p.r. campaign was or wasn’t commercial speech.

Redefine what constitutes commercial speech.

Determine there’s no difference between commercial and noncommercial speech.

The Supreme Court is expected to hear the case in April, but an exact date has not yet been set. A decision should be reached by June or July.

The events surrounding the case against Nike began in the spring of 1997. Young, a former UN ambassador, took a two-week tour of 12 Nike factories in China, Vietnam and Indonesia and discovered no systematic abuses. Afterward, he advised Nike to strengthen workers’ representation, implement external monitoring and strengthen its relationship with human rights groups.But labor and human rights advocates and activists blasted the findings for failing to address wage and union issues. Four-hour tours of factories and Nike escorts were not acceptable to anti-sweatshop crusaders.

Once consumers, especially college students, caught wind of the allegations, demonstrations cropped up outside of Niketown stores and protesters turned up for the company’s annual meeting in September 1998.

During an October 1997 interview with WWD, Nike chief executive officer Phil Knight said Young had told him, "With Nike being a poster boy for all these issues, it’s going to be an issue in the 2000 presidential campaign."

Knight also criticized how some of the media addressed its overseas working conditions.

"It’s always easy to blame the media," Knight said. "Everybody does, don’t they? But, in truth, I do think there’s some of that. In general, it hasn’t really presented a balanced view.

"But having said that, I think there’s a certain core constituency that’s really concerned about their jobs and the globalization of the economy. That’s very, very understandable. What’s unfortunate is that the arguments and the impact of all this globalization hasn’t had really a balanced presentation to the general population."

It seemed like Nike was coming under fire on a regular basis. For example, in October 1997 at a rally in Washington, D.C., organized by 15 women’s organizations, the Nike worker-rights issue was temporarily transformed into a gender one. In a letter to Knight released at the rally, Rep. Maxine Waters (D., Calif.), author Alice Walker and labor groups urged Nike to improve its treatment of Asian factory workers, many of whom are women.

With critics buzzing about the sneaker giant’s labor practices, Nike became more active in the cause of monitoring contractor conditions and by the fall of 1997, set up a "multimillion-dollar budget" to enforce fair-labor practices. As part of this effort, then director of labor practices Dusty Kidd flew from Oregon to speak with key media outlets, explaining how the brand had put a cap on work hours and revised its code of conduct without giving too many specifics.During Kidd’s media tour, he said Nike provided work for 450,000 to 500,000 workers in 300 factories in 32 countries, including the U.S. None of the workers received complimentary apparel or footwear, and the company declined to say whether any of them could afford to purchase Nike products in their respective countries.

Both sides in the Nike case readily agree that if Nike, as a corporate entity or its officers, made the same claims as regular citizens, then the First Amendment’s broad speech protections, even for false statements in many cases, would apply and there would be no case.

Nike’s argument that its defense of its contractors is covered by First Amendment protections met with agreement with the three state Supreme Court justices who filed dissenting opinions in the case now on appeal to the Supreme Court.

"Handicapping one side in this important worldwide debate is both ill considered and unconstitutional," wrote Justice Ming Chin. "Full free speech protection for one side and strict liability for the other will hardly promote vigorous and meaningful debate. Nike’s speech, in an attempt to influence public opinion on economic globalization and international labor rights and working conditions, gave the public insight and perspective into the debate. This speech should be fully protected as ‘essential to free government.’"

Since the Nike case has not gone to trial, the allegations of the company misleading or falsifying its anti-sweatshop record hasn’t been weighed by a jury or judge. However, under appeals court rules in cases that haven’t been tried, allegations are considered fact for purposes of debate. For its part, Nike defends its statements as true.

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