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In a ruling that’s sure to send a chill wind down Madison Avenue, the California Supreme Court ruled Thursday that companies can be sued for false advertising over policy statements made in public relations campaigns. Voting 4-3 in a case involving Nike Inc., the justices, relying on U.S. Supreme Court case law, said statements by the Oregon-based shoemaker denying allegations that some overseas factories are sweatshops were a form of commercial speech not protected by the First Amendment. “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,” Justice Joyce Kennard wrote, “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.” The court’s ruling did not decide whether Nike’s ads were false or misleading, instead leaving that for the trial court, which had sided with Nike at the demurrer stage. Chief Justice Ronald George and Justices Kathryn Mickle Werdegar and Carlos Moreno concurred with Kennard. Justices Ming Chin, Marvin Baxter and Janice Rogers Brown sharply dissented, accusing the majority of trammeling on constitutional freedoms by effectively silencing one party to the debate. “Handicapping one side in this important worldwide debate is both ill considered and unconstitutional,” Chin wrote. “Full free speech protection for one side and strict liability for the other will hardly promote vigorous and meaningful debate.” Ann Brick of the American Civil Liberties Union, which filed an amicus brief in the case on Nike’s behalf, said the majority’s analysis was “very disappointing.” “It essentially shuts business speakers out of the public debate on any issue that directly affects them. That kind of analysis is absolutely antithetical to the basic First Amendment principle that we let the people, not the government, decide who’s right and who’s wrong on an issue of public dispute.” Kasky v. Nike Inc., 02 C.D.O.S. 3790, began when Marc Kasky filed a private attorney general action claiming that Nike violated California laws prohibiting unlawful business practices and false advertising by issuing press statements refuting claims that workers in Nike’s Southeast Asian factories toiled in slavelike conditions. Kasky said those statements were deliberately deceptive. Two years ago, San Francisco’s 1st District Court of Appeal agreed with the trial court and tossed the case, saying that Nike’s public relations campaign was protected because it was noncommercial speech that dealt with a topic of great public interest. Several groups filed amicus curiae briefs with the court, and the dispute resulted in some odd bedfellows: the conservative Pacific Legal Foundation, for example, stood alongside the ACLU in backing Nike. In reversing the appeal court, the California Supreme Court fashioned a “limited-purpose test” aimed at helping trial court judges determine whether allegedly false advertising is commercial, as opposed to noncommercial, speech. The speaker must be someone engaged in commerce, the majority held, the intended audience should be actual or potential customers, and the content of the message must be commercial in character. Even under the new test, Chin wrote in his dissent, Nike should pass. “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,” he wrote. “This speech should be fully protected as ‘essential to free government.’” The majority saw otherwise, saying Nike had stepped across a fine line. “To the extent Nike’s speech represents expression of opinion or points of view on general policy questions such as the value of economic ‘globalization,’ it is non-commercial speech subject to full First Amendment protection,” Kennard wrote. “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.” The difference in treatment is justified, she held, because commercial speech — which is more readily verifiable by its speaker and more “hardy” than noneconomic speech — “can be effectively regulated to suppress false and actually or inherently misleading messages without undue risk of chilling debate.” In her separate, 30-page dissent, Justice Brown — making references to Harry Potter, Lord of the Rings, and King Arthur’s Court — said Nike’s statements should have been protected because the commercial and noncommercial aspects were “inextricably intertwined.” “Nike’s commercial statements about its labor practices,” she wrote, “cannot be separated from its non-commercial statements about a public issue, because its labor practices are the public issue.” Brown also called on the U.S. Supreme Court to re-examine its 60-year-old position on commercial speech, saying the court’s current doctrine “fails to account for the realities of the modern world — a world in which personal, political and commercial arenas no longer have sharply defined boundaries.” Coming up with any such new doctrine, she commented, might require “some wizardry.” “Unfortunately,” she added, “Merlin and Gandalf are busy, so the United States Supreme Court will have to fill the gap.” Nike’s attorney, David Brown of San Francisco-based Brobeck, Phleger & Harrison, said it was likely his client would seek review at the U.S. Supreme Court. As for the grounds, he said: “They’re well expressed in the two dissents.” Deborah La Fetra of the Pacific Legal Foundation said the majority ruling could set “a very bad policy of dampening debate on really important public issues.” “What this decision means,” she added, “is that one side of the debate gets full free speech protection, but a corporation trying to defend itself is subject to strict liability.” Alan Caplan, one of the plaintiff’s lead attorneys, saw a different message in Thursday’s ruling. “Every company is going to have to meet the standard now,” the San Francisco-based Bushnell, Caplan & Fielding partner said. “If you’re going to put statements out about [corporate policies], you’re going to have to tell the truth.”

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