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Corporations, public relations firms and media companies will be keeping a close eye on the outcome of the pending Supreme Court case between Nike Inc. and a California consumer, which stands to redefine what constitutes false advertising.

This story first appeared in the February 13, 2003 issue of WWD.  Subscribe Today.

Their concern is whether the Supreme Court will let stand a California case saying Nike’s defense in 1997 against antisweatshop allegations wasn’t protected by the Constitution’s First Amendment free-speech protections. The court in April will hear the case arising from San Francisco activist Marc Kasky, claiming that Nike lied about conditions in its Asian contractors when mounting a public relations campaign assuring consumers that the factory conditions and treatment of its workers met high standards.

The California Supreme Court last year sided with Kasky and found Nike had violated the state’s strict false-advertising regulations. The state court rejected Nike’s claims that its PR campaign was protected by the First Amendment, saying, rather, that the campaign amounted to commercial speech that’s regulated by most states and the federal government.

If the case against Nike isn’t overturned, “this will result in the compelled self-censorship of an enormous amount of…speech on important matters of public concern because the issues also happen to touch upon the speaker’s business operations,” wrote attorneys for the Council of Public Relations Firms, in a brief filed with the court supporting Nike.

The council argued that if the Nike case were the rule during the 1982 Tylenol cyanide tampering case, then Johnson & Johnson would have been hampered in defending its safety record while keeping the public informed about the case.

Likewise, the council said, McDonald’s would be hamstrung defending itself against fast-food critics and Monsanto “would no longer add their perspective to the debate regarding crop modification.”

Attorneys for Kasky argue that such concerns are overblown. In a brief filed with the Supreme Court, the attorneys claim the issue is simply whether Nike violated California’s unfair-competition and false-advertising laws.

Not so, argues the Council for Public Relations Firms, in its Supreme Court Brief. It wrote: “The Kasky decision inevitably will stymie public relations professions’ ability to assist corporations, maintain an open dialog with the public and engage in the uninhibited, robust and wide-open public debate that was previously thought to be protected by the First Amendment.”

Should Nike’s appeal be dismissed, Nike will not lose its free speech, but will be forced to be more truthful, according to National Labor Committee executive director Charles Kernaghan, who has long criticized Nike for its overseas labor practices.

“They will have to be more careful, to be truthful,” Kernaghan said. “Maybe from this point forward, workers will have more authority to organize, but we will have to wait and see. It would be a healthy dose of reality to make speech mean more. Far from having a deepening effect, I think it will help to clear the air.”

Based on records he said were found in a dumpster outside a Dominican Republic factory used by Nike, Kernaghan said Nike was spending almost 20 times more to advertise a product than it spent to pay a worker to make a garment there, Kernaghan said.

“This isn’t an equal battle. Corporations have budgets to get their messages out,” Kernaghan said. “But Nike won’t give the American people the names and addresses of the factories that make their goods.”

Even media companies reporting on a company’s claims — false or not — are concerned about being stifled if the Nike case isn’t overturned. Many of these companies “are actively reporting on the globalization controversy that is at the center of this case and most of Nike’s communications to the press at issue here were sent to them,” wrote attorneys for 32 media organizations, including the Tribune Co., the Washington Post Co. and NBC. If corporations, because of the Kasky decision, withhold their points of view in controversies, then the quality of stories will be negatively affected, the media attorneys wrote the high court.

“The Kasky decision will seriously hamper the media’s ability to obtain these critical business-oriented statements,” continued the media companies. “As a general rule, any law that imposes strict liability on [speakers] for false factual assertions regarding public issues has an undoubted chilling effect on valuable speech.”

Marc Gobé, president, chief executive officer and executive creative director of Desgrippes Gobé Group and author of “Citizen Brand,” said the case epitomizes how consumers are demanding higher levels of expectations and proof of sincerity from brands.

“Brands have to readapt to a changing environment and be clearly aware that any communications would be evaluated and certainly challenged,” he said. “This is just the beginning of a much bigger trend.”

In this new consumer-run democracy, people are voting with their wallets to support brands based on how they operate their businesses and their corporate ethics, Gobé said.

“People love brands. Brands are an important factor in their lives,” he said. “Consumers want brands to tell the truth and they don’t want to be manipulated by them.”

Maria Stefan, vice president of global business development for the Sporting Goods Manufacturers Association, said, “[The California State court’s ruling] effectively eliminates First Amendment protection for companies that speak out on public issues and subverts the actual public whom it screams to protect.”

Stefan said the case is not about product advertising, but issues of public interest and “a company’s ability to comment on those issues of public interest without having to face a lawsuit every time someone disagrees with a corporate point of view.

“If the Supreme Court does not reverse the decision, we will see the veil of transparency swing backward at a time when this kind of transparency is needed the most,” Stefan said.

Should the Supreme Court not overturn the Kasky ruling, the already-limited number of Fortune 500 companies that publish corporate responsibility reports would decline, she added.

“For the corporation, it’s certainly less risky to remain silent then to utter a single word,” Stefan said. “What an Orwellian twist on expanding communication and understanding in an information society.”

Kasky sets up that anyone who believes that what a company writes or says is false, misleading or incomplete, can bring a lawsuit without any burden of proof, she said.

“You’re not going to be able to put caveats in what and how you say something,” Stefan added. “It is not as simple as getting a bunch of lawyers into a room with public relations people and framing something so there is no risk.”

Sam Shahid, president and creative director of Shahid & Co., which handles Abercrombie & Fitch’s advertising, said, “I think you just have to be true to yourself no matter what. We don’t buckle under to outside pressure. We feel we’re right about what we’re doing and no matter what, it doesn’t change our opinions.”

“Whoever listens, I think we feel responsible and believe in what we’re doing and the work. It’s not damaging people’s minds. The client, hopefully, will always feel the same way.”

He also highlighted how bad publicity can be used to a company’s advantage. Referring to the criticism and eventual shelf-clearing of A&F T-shirts that carried images of Asians and such messages as “Wong Brothers Laundry Service, Two Wongs Can Make it White,” Shahid said: “The [negative] publicity that surrounded Abercrombie & Fitch paid off, however. It was amazing and they capitalized on it by supporting Asian-American foundations. It’s a double-edged sword. You have to capitalize when something backfires like that. We’ve been there so many times with other things we’ve done.”

“I think that some groups will always feel offended by something,” Shahid added. “There’s nothing you can do. I’ll probably get in trouble for saying that, but that’s how I feel. I’m not out to hurt anybody, and nobody is damaged by anything, are they?”

But Donna Lopiano, executive director of the Women’s Sports Foundation, said companies should be held to a higher standard.

“I think corporations have always been under an obligation to ‘truth in advertising,’ whether it is about products or practices,” Lopiano said. “To the extent the courts emphasize this responsibility, corporations will feel more pressure to be accurate.”

Howard Rubenstein, president of the public relations firm that bears his name, said companies are not yet concerned about the potential outcome of the pending case, but they are sure to take note should Nike lose the appeal.

“It could have a chilling effect on corporations’ ability and willingness to speak out, explain their actions and take part in public debate,” Rubenstein said. “I would think that corporate executives and public relations staff would be less inclined to answer even general questions from the media. At a time when we are encouraging companies to be more transparent and open with the public, a ruling against Nike’s appeal would likely take us in the other direction.

“Corporations should always strive to be completely truthful in all their public communications, whether in an ad or a press release. At the same time, they should have the right to respond to criticism and to comment on issues that affect them in public forums. Public relations and advertising are distinctly different forms of communication. I hope that fact is taken into account in this case.”

At the very least, a ruling against Nike would result in many companies reviewing their policies and procedures related to advertising and public relations to ensure adequate safeguards in place, Rubenstein said.

The Supreme Court is expected to hear the case in April, with a decision reached by June or July.