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April 2003

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Nike: Free Speech or Truth or Consequences

by Glen Emerson Morris

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A law suit in California may have a profound effect on how businesses defend their business practices in public, especially on the Internet. For those not familiar with the case, Nike is being sued by a California activist named Marc Kasky for violating California’s truth in advertising law. After being thrown out by lower courts, the case has landed in the U.S. Supreme Court. If the court decides the case should be heard, a new legal standard will be set.

The issues in the case are simple, the implications are not. After losing business in the mid-nineties to charges of funding sweatshop conditions overseas, Nike publicly denied there were major problems, and claimed it enforced a "Code of Conduct" that prohibited overseas factories from abusing workers. Nike did not include these denials in its ads, just in press releases and public statements. The law suit claims Nike knowingly lied about working conditions to improve sales, which amounted to advertising, and therefore the denials are subject to the truth in advertising law.

In its defense, Nike denies the charges of sweatshop conditions, but has chosen to try to avoid court completely on the grounds that its press releases and public statements weren’t ads, and therefore weren’t covered by the California truth in advertising law. Instead, Nike claims the denials were made as free speech, and protected by the First Amendment. Under this argument, whether the denials were the truth or lies is irrelevant.

The accusations against Nike contractors don’t read well. The suit claims that workers are forced to work 14 hour days, only given 2 days off a month, and systematically subjected to physical and sexual abuse. A story on said an audit Nike commissioned Ernst & Young reported violations of the Nike Code of Conduct that left women workers in a climate of "desperation, physical exhaustion and pressure to work overtime to meet high production quotas." Nike chose not to release the audit, but it seems to have leaked out anyway.

In a pre-Internet world, Nike probably wouldn’t be having this problem at all because of the communications barrier that existed then. It would have been difficult for anyone to find out about working conditions in foreign countries, and difficult for them to distribute that knowledge once they acquired it. Now, that kind of information travels to millions at the speed of light. Add search engines to the equation and you have a world where people can find out about nearly everything, on a moments notice.

In the Age of the Internet damage control is a lot more difficult than it used to be. And it’s only going to get worse. Consumer groups are getting increasing skilled at using the Internet for political ends, and they’ll get much better over the next decade. In a few years, the entire content of any business Website may be subject to truth in advertising laws, and at the national, state, and local levels.

The Nike situation in California isn’t an isolated case. After a decade of corporate scandals, consumer groups are beginning to question the basic status of corporations in America, and they’re beginning to demand new and harsher punishments for corporations that break the law. They’re saying that if a corporation is to have the rights of a human being, it should also be subject to the same punishments. For instance, if a human is convicted of a felony, they usually lose the right to vote. Of course, corporations don’t vote, but they do lobby and donate to politicians, and loss of these "rights" could become a standard practice if some consumer groups get their way. One group is even proposing that laws be passed to declare that corporations do not have the same rights as individuals. Even an ultra-conservative amendment couldn’t trump a Constitutional Amendment to this effect.

In the case of Kasky vs. Nike, Kasky is asking for a fine equal to all the profit Nike made in California in a specified time period. Kasky has asked the court to consider giving the award to consumers, or to the Nike’s third world workers. Such a verdict isn’t out of the question, but it would be unusual.

The business world acquired a special status with the public by the prosperity it produced, and all the things our very lives have come to depend on. For this reason, serious punishment, especially capital punishment, is not considered as a viable option. If a regional phone company cooked the books, should the local phone network torn up and sold for scrap? In practice, even for serious violations, all most corporate criminals get is a slap on the wrist. However, some laws have to in be in effect just to attract investors. Where to draw the line is a tough call, but it’s clear the system won’t work if lines aren’t drawn somewhere.

While cloaked in First Amendment rights, Nike’s basic argument is that it claims it has a right to lie. Nike argues this right comes from the First Amendment, and it may have a point, at least by today’s standards, but is this really the standard American business wants to be judged by? And as the Pentium public relations disaster proved, what’s the point of lying if someone is posting the truth on the Internet and millions are reading it.

In retrospect, Nike may come to regret its tactics. If innocent, and Nike avoids going to court, Nike may never clear its image with the public, both about sweatshop conditions, and its I-have-a-right-to-lie defense. If Nike is guilty, and Nike loses the appeal and the subsequent suit, Nike could lose millions on past and future sales, and suffer an incalculable loss of goodwill. Even more importantly, the legal precedent this case could set would change public relations in America forever.

Glen Emerson Morris is currently Senior Quality Assurance Engineer responsible for e-mail services at Previously, he was a consultant for Ariba, WebMD, Inktomi, Apple, and Adobe.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved

' keywords: Internet advertising, Internet marketing, business, advertising, Internet, marketing. For more advertising and marketing help, news, resources and information visit our Home Page.

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