Nike Case Before U.S. High Court

The U.S. Supreme Court on Wednesday will hear oral arguments in a case involving Nike Inc., the world’s largest maker of athletic shoes, and statements the company made defending its overseas labor conditions.

At issue is a ruling by the California Supreme Court last year upholding the right of a San Francisco man to sue Nike for false advertising.

Consumer activist Marc Kasky, who brought the lawsuit five years ago, argued that the company lied to the public in denying that its shoes were made under sweatshop conditions at factories in China, Vietnam and Indonesia.

This public denial, he said, violated California’s law against false advertising and unfair trade practices.

The California court agreed, in a 4-3 ruling, that Nike’s statements were “commercial speech” intended to help it sell merchandise and, therefore, not entitled to the same 1st Amendment protection other forms of expression enjoy.

Kasky’s lawsuit asks that Nike be forced to give up California profits and correct its alleged misstatements in court-supervised advertising.

But the California ruling -- which has a national effect because so many companies seek to do business in the state -- has been under attack almost from the day it was issued. Several corporations, public relations executives and media companies have criticized the ruling.

Nike is appealing to the U.S. Supreme Court on the grounds that the ruling denies companies free speech by preventing them from publicly defending their business practices.

The state ruling, Nike argues, could apply to almost any public statement a company might issue about its corporate practices, including a remark to the media, thus deterring corporations from communicating even on matters of genuine public interest.

Supporting the company in court briefs are Microsoft Corp., Pfizer Inc., Exxon Mobil Corp., the securities firm Morgan Stanley and drug maker GlaxoSmithKline.

Pfizer’s brief said even though makers of hormone-replacement drugs for menopausal women have an economic interest in their products, they should be able to debate the therapy’s safety and effectiveness without risking a lawsuit.

Pfizer suggested giving companies a constitutional “right of reply” to attacks on their business practices.

The Supreme Court is expected to issue a ruling by the end of June.

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Bloomberg News was used in compiling this report.