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Client Alert - A Letter to the Editor May Cause Corporate Liability

09.05.2003

The free speech case of Nike v. Kasky was settled by Nike on September 12, 2003, but not before the California Supreme Court issued a decision with far-reaching implications for the liability of companies for their public statements.

Media Actions and Lawsuit

The Nike v. Kasky case turned on actions that Nike took in the late 1990s to respond to allegations in the media that it was mistreating and underpaying workers in overseas manufacturing facilities for its sporting goods. Nike put out press releases, wrote letters to the editors of various newspapers, sent letters to university presidents and athletic directors, and bought ads in leading newspapers. In 1998, Marc Kasky sued Nike for unfair competition and false advertising, alleging that Nike made several false statements or material omissions of fact about working conditions in overseas facilities in responding to allegations against it. Kasky brought suit under the 'private attorney general' provision of California's unfair competition and false advertising law permitting private citizens to bring suits that allege damage to the general public.

Proceedings in the Courts

Both a California trial court and a mid-level appeals court agreed with Nike that Kasky's case should be dismissed because Nike's actions constituted non-commercial speech protected by First Amendment freedom of speech. The California Supreme Court later disagreed, however, holding that Nike could be liable for false statements or material omissions of fact because it had engaged in 'commercial' speech akin to advertising and similar promotion. Nike appealed to the U.S. Supreme Court, which initially granted and then, in June 2003, denied review of the California Supreme Court's decision. Before the case could proceed in the California courts to determine whether Nike had in fact made false statements or material omissions of fact in its letters to the editor and other public statements, Nike announced that it had agreed to settle the case, without admitting any wrongdoing, by paying $1.5 million to the Fair Labor Association, a workers' rights group.

Companies Should Carefully Consider Public Response to Allegations of Wrongdoing

In light of the California Supreme Court decision in Nike v. Kasky, companies operating in the United States and with business in California, particularly those in the fashion and apparel industries, should carefully consider what, if any, public response to make if and when accused of wrongdoing. The Nike v. Kasky case broadly defines what is 'commercial' speech and thus entitled to a lesser degree of First Amendment protection. Communications—such as letters to the editor on a matter of public debate like overseas working conditions—that previously might have been thought to be shielded by the First Amendment are now potential grounds for liability if they contain false statements or material omissions. For example, the case against it reportedly caused Nike to cancel publication of its Corporate Social Responsibility report for 2003. At the very least, companies should be careful about any public response to criticism and, if necessary, should seek professional advice beforehand.

For more information, please contact William M. Borchard.
Copyright © 2003 Cowan, Liebowitz & Latman, P.C.

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