If Nike defends itself, is that a commercial?

For years, Nike Inc. has been under pressure for the labor practices of its contractors in developing countries. Now, the world's largest athletic-footwear company - known for its swoosh icon and high-priced pitchmen - has gone to the Supreme Court to argue for its right to free speech.

The case, to be heard Wednesday, centers on Nike's ability to participate in public debate over its foreign business operations - which critics call dangerous and immoral - without being held liable for any false or misleading statements. The question is whether Nike is engaging in commercial speech, which is subject to civil charges if found to be false, or political speech, which enjoys greater protection under the First Amendment.

"This case is extremely important, because the court has never really tackled the difficult issue of how you draw the line between commercial speech ... and what we think of as traditional First Amendment expression," says Ann Brick, a lawyer for the American Civil Liberties Union Foundation of Northern California. Aside from its corporate impact, she notes, the outcome could affect labor unions and advocacy groups, whose public statements can have a commercial dimension.

The Nike case also reflects the difficulty of overseeing social and environmental practices of multinational corporations - important to some investors - in an increasingly globalized economy. Corporate America and free-speech advocates have sounded alarm bells over the case, warning that if Nike loses, the decision could have a chilling effect on public discourse over matters of public concern. Nike says it should have the same speech rights as its opponents when participating in a debate over its factories. Critics argue that Nike shouldn't have a constitutional right to lie.

"There are plenty of critics of Nike out there presenting their side of the argument for citizens and consumers to evaluate," says Walter Dellinger, a lawyer for Nike and a constitutional scholar at Duke University. "The First Amendment leaves the resolution of that debate up to the marketplace of ideas, not to courts or other government agencies."

Medea Benjamin, founding director of the social-justice organization Global Exchange, disagrees. Nike makes claims about factory conditions aimed at easing concern over how its products are made and thus, "this is commercial speech," she says. "It's supposed to be the truth."

The Beaverton, Ore.-based company contracts out production to some 900 factories in 51 countries with more than 600,000 employees. Several years ago, Nike began to suffer negative publicity over allegations that conditions in its Asian factories were dangerous and that workers there were badly treated and underpaid.

The Supreme Court case stems from a 1998 lawsuit, in which San Francisco activist Marc Kasky asserted that Nike made false statements about sweatshop conditions in its Asian factories. Mr. Kasky - saying that Nike's statements violated California's unfair-competition and false-advertising laws - sought a court order to financially penalize Nike.

Last May, Kasky won. The California Supreme Court narrowly ruled that Nike was potentially liable for any false or misleading claims it made in public about its overseas operations.

Though the statements in question were made in press releases, pamphlets, and on its Web site - not in formal advertisements - the court still found them to be "commercial speech," holding that the speaker, the intended audience, and the message were all commercial, or potentially commercial, in nature.

California's highest court didn't rule on the accuracy of Nike's statements, and instead sent the case back to a lower court for trial. But Nike didn't wait for a California trial. The company took Kasky to the US Supreme Court. In their brief, Nike's lawyers assert that the California Supreme Court expanded the definition of commercial speech "beyond all previously accepted bounds."

Citing US Supreme Court precedent, Nike's brief said that commercial speech must "propose a commercial transaction." In the 1970s, the Supreme Court extended some First Amendment protections to commercial speech, ruling that such speech may carry information relevant to issues of the day.

In its ruling, the California high court stated that it wasn't inhibiting Nike's right to defend itself - just that Nike must speak truthfully when it makes statements about its products or operations.

Since the mid-1990s, when Nike first came under fire over its working conditions, the company has fought back, making promises in a voluntary code of conduct regarding labor. In 1997, Nike also commissioned former UN Ambassador Andrew Young to review the critics' charges, and Mr. Young concluded they were false. Nike then used political advertisements, press releases, letters to the editor, and newspaper opeds to publicize Young's finding. All of these communications, Nike says, were kept separate from advertising.

Advocates of corporate responsibility say it's impossible to separate the two, because increasingly, consumers and investors factor in the conditions in which products are manufactured.

Domini Social Investments, in a brief supporting Kasky, argues that if the Supreme Court grants full First Amendment protection to corporate speech, that would undermine reporting and disclosure requirements of the Securities and Exchange Commission - precisely "at a time when restoring investor confidence in the markets is crucial."

"The risk is that the Supreme Court will say the line between commercial and political speech can't be drawn, and if it can't be drawn, do we demote political or promote commercial speech?" says Burt Neuborne, legal director of the Brennan Center for Justice at New York University Law School. "They won't lower the protections for political speech." Instead, he says, the case could backfire against Nike's critics and end up enhancing speech protections for corporations.