Nike Settles Free-Speech Case
$1.5 Million

FRANK TANG / Reuters 12sep03

NEW YORK—Nike Inc. has agreed to pay $1.5 million to settle a lawsuit over how it defended itself against accusations of using sweatshop labor in Asia, ending a case that was seen testing the limits of free speech. Nike, the world's largest maker of athletic shoes, said ohm Friday it will pay the money to the Fair Labor Association, a Washington-based group promoting worker education, for workplace programs over the next three years.

Nike had mounted a publicity campaign, including press releases, letters to newspaper editors, and postings on its Web site, after it was accused of exploiting workers with sweatshop conditions at Third World factories used to make its footwear.

The lawsuit claimed Nike misled the public about working conditions for Vietnamese, Chinese and Indonesian laborers, and that its statements amounted to false advertising.

Nike had argued the case should be dismissed because all the statements were protected as free speech. The U.S. Supreme Court in June cleared the way for the suit to proceed after refusing to decide whether the U.S. Constitution's rights of free speech protected Nike's campaign.

Arthur Hellman, a law professor at the University of Pittsburgh, said the settlement is a defeat for free speech, because corporations will be more careful on what they say about business practices that could be subjects of debate.

"Corporations will hold back in saying some of the things that they might have said, or they won't say anything," fearing that others may file lawsuit against them on misleading and incomplete information, he said.

In fact, Nike said Friday it will not disseminate its corporate responsibility report outside the company and will continue to limit its participation in public events and media engagements in California.

"No corporate board of director wants to risk a trial, which is very expensive and generates an enormous amount of bad publicity, and that explains why Nike settled." Hellman said.

The lawsuit, filed in 1998 by Marc Kasky, a San Francisco consumer activist, cited a California consumer protection law aimed at eliminating unfair competition and false advertising.

The lawsuit claimed Nike knew workers suffered physical punishment and sexual abuse, endured dangerous conditions, and worked as long as 14 hours a day without earning a "living wage."

The lawsuit alleged the Beaverton, Oregon-based company falsely portrayed itself as a "model of corporate responsibility" in an effort to boost sales.

Nike denied the allegations and argued the case should be dismissed on free speech grounds. It said its statements were part of an international media debate on issues of public interest.

CORPORATE RIGHT OF FREE SPEECH

The California Supreme Court had ruled Nike's corporate statements could be regulated as commercial speech and allowed the lawsuit to go to trial.

In June, the U.S. Supreme Court dismissed Nike's appeal by a 6-3 vote without deciding the merits of the dispute. The decision disappointed those who had expected the case to produce a major First Amendment ruling.

The Nike payment will be used to monitor manufacturing countries, worker education and to develop a global standard on corporate responsibility, Nike and the plaintiffs said in a joint statement.

Nike also said it will maintain its existing commitment on after-hours worker education and its micro-loan programs for at least $500,000 in the next two years.

McAdams Wright Ragen analyst Jamelah Leddy said she did not think the settlement would have any meaningful effect on the company's fundamentals.

"It's a small enough dollar amount from a financial perspective that should be negligible." said Leddy, who rated Nike "buy" and does not own any of its shares.

Nike shares fell 36 cents at $55.43 Friday afternoon on the New York Stock Exchange (News - Websites). The company's stock has risen about 21 percent year-to-date.