The Supreme Court agreed Friday to decide whether U.S. companies have a free-speech shield when using public statements to defend themselves without fear of being sued for false advertising.
The justices voted to hear Nike Inc.'s appeal of a California court ruling that cleared the way for the shoemaker to be sued for denying that its Asian factories were sweatshops.
The case started as a battle over working conditions in the Third World but has evolved into a potential landmark in 1st Amendment law.
Nike came under a harsh light in a 1996 report by CBS News that said workers at the company's factories in Southeast Asia were poorly paid, exposed to toxic chemicals and subjected to physical abuse.
A year later, the Beaverton, Ore., shoemaker responded with a report asserting that its factories meet all applicable health, safety and labor standards. In news releases, pamphlets and newspaper opinion pieces, the company and its top executives said its factories paid a "living wage" and were "operating morally."
San Francisco activist Marc Kasky sued Nike in 1998 un- der California's false-advertising law, contending that its public relations campaign was a fraud.
His suit cited an internal Nike audit that found that the young women working at a Vietnamese plant were exposed to toxic chemicals that were 177 times the legal limit. He also sought a court order that would force Nike to turn over the profit it has earned in California.
"There is no constitutional right to dupe consumers. This case is far more about 'truth in advertising' than about 'freedom of speech,' " said Patrick Coughlin, a lawyer for Kasky.
Nike's lawyers said the suit should be thrown out of court on 1st Amendment grounds.
But in a ruling that caught the attention of corporate America, the California Supreme Court in a 4-3 decision rejected Nike's free-speech claim in May and cleared the suit to go to trial.
"Our holding in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices," the state high court said. "It means only that when a business enterprise makes factual representations about its own products or its own operations, it must speak truthfully."
Business groups, including the U.S. Chamber of Commerce, and 32 news organizations -- including Tribune Co., which publishes the Los Angeles Times and the Chicago Tribune; the New York Times; the Washington Post; and CNN -- urged the Supreme Court to reverse the California court ruling.
"Speech on public policy matters has always been understood to lie at the heart of the 1st Amendment," the chamber's lawyers said, "and incorrect statements regarding such matters have always been protected because mistakes are inevitable in such debates."
Nike's lawyers also said California was the only state that had stretched its law against false advertising to include private suits that attack a company's public statements and news releases.
"No company should be impeded from engaging in the marketplace of ideas just because they operate in the marketplace of goods," said former Solicitor General Walter Dellinger, who appealed on Nike's behalf along with Harvard law professor Laurence H. Tribe.
The case, Nike vs. Kasky, may force the court to clarify the law on the 1st Amendment, advertising and commercial speech.
Politicians, public figures and other advocates are free to make public statements and generally cannot be sued even if their claims are exaggerated or misleading.
Advertising is different, however, because consumers can be cheated or misled. Companies can be fined by the government or sued by private citizens for deceptive ads.
But the Nike case appears to fall somewhere in the middle. The company says its public statements should be fully shielded as free speech, whereas critics say they are a type of advertising and promotion.
For its part, the Supreme Court has been divided and uncertain about how to classify commercial speech. Justice Clarence Thomas, a conservative, and Justice John Paul Stevens, a liberal, have called for greater free-speech protection of advertising.
But so far, the court has not agreed on a majority view of the issue. The justices will hear arguments on the case in April and rule by late June.
If Nike wins, the lawsuit would be thrown out. If Kasky prevails, his case would return to San Francisco for trial.
In other matters, the court agreed to hear a challenge to California's unique milk price support system.
Dairy farmers in Nevada and Arizona say the California system is unfair and "protectionist." Although the U.S. Department of Agriculture regulates most dairy price systems, California has had its own system for nearly a century. (Hillside Dairy vs. Lyons)
The justices also will decide whether workers who say they are disabled are entitled to rely on their doctor's word. Employers say an outside doctor should decide. In a Los Angeles case, the U.S. 9th Circuit Court of Appeals sided with the worker. (Black & Decker Disability Plan vs. Nord)