Nike, Sweat Shops, And Free Speech

Businessweek (registration required) has an article on the Nike lawsuit. Here's an excerpt:

In 1997, Nike (NKE ) hired Andrew Young, the former U.N. Ambassador, to evaluate 12 factories that make its sneakers, mostly in Asia. Young issued a favorable report, and Nike issued press releases about his findings. It also wrote letters to colleges faced with anti-sweatshop activists who were urging the schools to boycott Nike products. The company emphasized its code of conduct requiring factory contractors to adhere to decent labor standards.

A year later, San Francisco activist Marc Kasky sued Nike for false advertising under California consumer protection laws. He alleged that Nike's campaign misled the public about working conditions inside its factories. In response, Nike argued that its statements concerned labor practices, not products, and therefore should be considered protected political speech.

The issue is how to distinguish between political and commercial speech. The U.S. Supreme Court has held that political speech, even when inaccurate, enjoys First Amendment protections. But that's not true of advertising and other forms of commercial speech that are intended to boost sales and profits. They're subject to state consumer protection laws, which require companies to prove the accuracy of their statements.

The Kasky case raises a complex issue that the courts haven't addressed before. If Nike had paid for newspaper or TV ads, the commercial nature of its statements would be obvious. But in this case, the company wrote letters and issued news releases. Nike's lead lawyer, Harvard University law professor Laurence H. Tribe, argues that treating them as equivalent to advertising would undercut companies' ability to speak out on political issues.

But the California court made the opposite point: If Nike can misrepresent the conditions under which its shoes are made with impunity just by issuing the information in the form of a press release, then any company can use the First Amendment to shelter falsehoods aimed at selling its wares. "If a company makes false statements about its product or practices with the intent of increasing profits, that's commercial speech," says Erwin Chemerinsky, a First Amendment scholar and University of Southern California law professor who filed a brief supporting the Kasky position

Maybe a law blogger can shed some light on this issue.
Update: There is more info here.