Update: (June 26, 2003) While Nike, Inc. appealed the California court's ruling to the United States Supreme Court, and the Court agreed to hear the case, today the Court changed its mind and decided that review had been improvidently granted, and dismissed the appeal. That means the California Supreme Court decision discussed below stands as the last word on the case.
On May 2, 2002, the California Supreme Court held that Nike, Inc. may be held accountable for alleged false statements in its PR campaign to convince customers that Nike does not abuse its workers.
Background
Nike sells athletic shoes and apparel. Its products are manufactured by subcontractors in China, Vietnam and Indonesia. Most of the workers who make Nike’s products are women under the age of 24.
Beginning in around 1996, Nike was attacked by print and television journalists for paying its workers less than the local minimum wage, requiring overtime, subjecting workers to unsafe, unhealthy and abusive working conditions, all in violation of local laws.
In response, Nike denied these allegations and mounted a PR campaign. Nike’s denials were printed in press releases, full-page newspaper ads, letters to university presidents and athletics directors, and other documents.
Kasky’s Complaint
Marc Kasky, a California activist, alleged that statements made by Nike, Inc. in its PR campaign were false and misleading, and made for the purpose of maintaining or increasing its sales and profits, in violation of California consumer protection laws. The complaint demanded money, as well as court orders requiring Nike cease misrepresentations and publish retractions.
Demurrer
Nike, Inc. filed a “demurrer.” A “demurrer” is “a formal mode of disputing the sufficiency of the law of the pleading of the other side.” Black’s Law Dictionary ( 4th Ed. 1957) at 520. Even if all the facts stated in the complaint are true (in this case, even if it is true that Nike, Inc. made false or deceptive statements about its overseas labor practices) the plaintiff is still not entitled to the relief requested in the complaint, as a matter of law.
In this case, Nike, Inc. argues that its statements about its labor practices were speech protected by the First Amendment to the United States Constitution.
In federal court, and in states with similar rules of procedure, the term "demurrer" is not used, but the same thing is accomplished by a Rule 12(b)(6) motion to dismiss for failure to state a claim. Whatever you call it, a “demurrer” or motion to dismiss tests the legal sufficiency of the complaint.
First Amendment
The First Amendment was adopted in 1791, shortly after the ratification of the Constitution. Proponents of the Constitution thought that enumeration of specific rights was unnecessary, and indeed, might be harmful because rights not mentioned in the list would be ignored. Opponents wanted specific guarantees. The compromise was to add a list or Bill of Rights as amendments, with one amendment confirming that the list was non-exclusive, i.e. Amendment IX: “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” In practice, the Ninth Amendment is universally ignored, especially by conservatives confronted with liberal judicial activism.
The First Amendment guarantees, among other things, freedom of speech and freedom of the press. On matters of public import, this includes the right to express any opinion, true or false, plausible or ridiculous, popular or unpopular, wise or foolish. “Under the First Amendment, there is no such thing as a false idea. However pernicious an opinion may seem, we depend for its correction not on the conscience of judges and juries but on the competition of other ideas.” Gertz v. Robert Welch, Inc., 418 U.S. 323, 339-340 (1974).
The First Amendment, as was the case with most of the Bill of Rights, originally applied only to the federal government. It states: “Congress shall make no law ...”. However, in the aftermath of the Civil War, the Fourteenth Amendment (ratified 1868) changed that. It states:
All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
The phrase “born or naturalized” and the grant of citizenship suggests that “persons” meant individual natural persons (i.e. people, not business entities like corporations, partnerships, limited liability companies, etc.). Nonetheless, the Supreme Court fairly quickly granted at least “due process” rights to corporations.
Commercial Speech
The First Amendment does not offer as much protection for commercial advertising as it does for noncommercial speech. It is easier to get a law regulating noncommercial speech declared “unconstitutional”, than it is to get a law regulating advertising struck down. A regulation prohibiting noncommercial speech based on its content (as opposed to time, place or manner restrictions, such as yelling “fire” in a crowded theater, or yelling anything in my neighborhood when I am trying to sleep) must withstand “strict scrutiny”. “Strict scrutiny” means the law must be “narrowly tailored” or the “least restrictive means” to promote a compelling government interest.
For example, the United States Supreme Court has recently struck down several federal laws attempting to regulate pornography on the Internet. Pornography, per se, enjoys no First Amendment protection, but the laws in question also restricted access to non-pornographic political, artistic and scientific speech which is protected by the First Amendment. The laws were not discretely targeted at porn and only porn, or were not the “least restrictive means” to keep porn away from immature members of society, such as children and religious extremists.
Commercial speech is entitled to somewhat similar protection, but courts require only a “reasonable fit” between government objective and the means to achieving it. Board of Trustees v. Fox, 492 U.S. 469, 480 (1989). More significantly for Nike, Inc., however, is that commercial speech, unlike political opinions, must not be false or misleading. False advertising can be prohibited by state law, and in California, it is.
The reasons for making a distinction between commercial and noncommercial speech:
- a statement about a product or service is verifiable;
- advertising is unlikely to be “chilled” or deterred by requiring truth;
- commercial speech is “linked inextricably” with commercial transactions, which the government must control to protect public health and safety
For example, “Bush sucks” is a nonverifiable statement of opinion on a political matter, not subject to government regulation. “Our burgers are 100% beef” is a verifiable statement of fact, which is subject to government regulation.
Whether Nike’s PR campaign was commercial speech
It is not always possible to distinguish statements of fact from statements of opinion, or to separate commercial and non-commercial speech. In this case, however, the Court noted that Nike is a commercial entity and the intended audience for its PR campaign clearly included people who buy Nike’s products. Moreover, the campaign including verifiable representations of fact about Nike’s operations.
The Court held that Kasky was entitled to a chance to prove that these fact statements were false. The district court’s ruling sustaining the demurrer was overruled and the matter was remanded for further proceedings.
Due to the procedural posture of the case ( i.e. it isn’t over) Nike cannot immediately appeal, Nike will have to wait until Kasky has had a chance to offer evidence that Nike made false or misleading statements.
It will be worth noting whether Nike settles the matter now to avoid the unfavorable publicity which might be generated by a trial, or continues to litigate, hoping to appeal to the Supreme Court of the United States for review and possible reversal of the California high court’s decision.
Note on citation: this opinion will appear in West Publishing’s “California Reporter, Fourth Ed.”, abbreviated as “Cal.4th”. As I write this, this is a brand new decision (May 2, 2002) and the volume and page remains unknown. In California opinions, the year is given after the names of the parties, as in: Kasky v. Nike, Inc. (2002) __ Cal.4th __. In “Blue Book” style (in the manual of citation published by Ivy League law reviews), the year goes last: Kasky v. Nike, Inc., __ Cal.4th __ (2002). Citation to “Cal.4th” makes unnecessary to specify that this is a decision of California’s Supreme Court (as opposed to lower-level California Courts of Appeal) because only the Supreme Court gets published in that series. Court of Appeals decisions are published in the “Cal.App.” series.
California is a huge state in terms of size, population and economic significance. Its opinions are published in their own law books. The opinions from smaller states are collected in regional reporters. For example, the cases from all the Western states except California are published in the “Pacific” reporter, currently in its third series, hence, “P.3d”. Some states have adopted what are called “vendor-neutral citations”, in which the Court assigns each published case an official number. Vendor-neutral cites are particularly useful for electronic publishing by anyone other than West Publishing, i.e. Lexis-Nexis and others. Cases from these states have three citations: vendor-neutral, West’s state series, West’s regional series. Since West Publishing lavishes attention on California, with its large and lucrative market for law books, California has not (yet) appreciated the need for vendor-neutral cites.