Kasky v. Nike: Just the Facts

The following is a summary of the facts of the case of MARC KASKY, Plaintiff and Appellant, v. NIKE, INC., et al., Defendants and Respondents as presented in the record of the Court of Appeal of the State of California. First Appellate District, Division One

Nike, Inc., a marketer of athletic shoes and sports apparel, has grown into a large multinational enterprise through a marketing strategy centering on a favorable brand image, which is associated with a distinctive logo and the advertising slogan, “Just do it.” To maintain this image, the company invests heavily in advertising and brand promotion, spending no less than $978,251,000 for the year ending May 31, 1997. The promotional activities include product sponsorship agreements with celebrity athletes, professional athletic teams, and numerous college athletic teams. Reviewing the company’ s successful marketing strategy, the 1997 annual report asserts, “[W]e are a company . . . that is based on a brand, one with a genuine and distinct personality, and tangible, emotional connections to consumers the world over …”

Like other major marketers of athletic shoes and sports apparel, Nike contracts for the manufacture of its products in countries with low labor costs. In Nike’ s case, the actual production facilities are owned by South Korean and Taiwanese companies that manufacture the products under contract with Nike. The bulk of Nike products are manufactured in China, Thailand, and Indonesia, though some components or products involving more complex technology are manufactured in South Korea or Taiwan. In 1995, a Korean company opened up a major new facility in Vietnam, giving that country also a significant share of Nike’ s production. The record indicates that between 300,000 and 500,000 workers are employed in Asian factories producing Nike products. The complaint alleges that the vast majority of these workers are women under the age of 24.

The company has sought to foster the appearance and reality of good working conditions in the Asian factories producing its products. All contractors are required to sign a Memorandum of Understanding that, in general, commits them to comply with local laws regarding minimum wage, overtime, child labor, holidays and vacations, insurance benefits, working conditions, and other similar matters and to maintain records documenting their compliance. To assure compliance, the company conducts spot audits of labor and environmental conditions by accounting firms. Early in 1997, Nike retained a consulting firm, co-chaired by Andrew Young, the former ambassador to the United Nations, to carry out an independent evaluation of the labor practices in Nike factories. After visits to 12 factories, Young issued a report that commented favorably on working conditions in the factories and found no evidence of widespread abuse or mistreatment of workers.

Nevertheless, Nike was beset in 1996 and 1997 with a series of reports on working conditions in its factories that contrasted sharply with the favorable view in the Young report. An accounting firm’ s spot audit of the large Vietnamese factory, which was leaked to the press by a disgruntled employee, reported widespread violations of local regulations and atmospheric pollution causing respiratory problems in 77 percent of the workers. An investigator for Vietnam Labor Watch found evidence of widespread abuses and a pervasive “sense of desperation” from 35 interviews with Vietnamese workers. An Australian organization published a highly critical case study on Nike’ s Indonesian factories. And the Hong Kong Christian Industrial Committee released an extensively documented study of several Chinese factories, including three used by Nike, which reported 11- to 12-hour work days, compulsory overtime, violation of minimum wage laws, exposure to dangerous levels of dust and toxic fumes, and employment of workers under the age of 16.

These reports put Nike under an unusual degree of public scrutiny as a company exemplifying a perceived social evil associated with economic globalization-the exploitation of young female workers in poor countries. An article in The Oregonian of Portland, Oregon, asserted: “The company’ s worldwide production system has turned the Beaverton giant into an international human rights incident.” The News & Record of Greensboro, North Carolina, asked, “But who wants to enjoy products made on the backs of human misery?” The New York Times carried a series of eight articles in 1996 and 1997, reporting “grim conditions” and widespread human rights abuses in Nike factories. And a CBS television report juxtaposed the complaints of a Vietnamese worker with disclaimers by company officials.

Nike countered with a public relations campaign that defended the benefits of its Asian factories to host countries and sought to portray the company as being in the vanguard of responsible corporations seeking to maintain adequate labor standards in overseas facilities. Press releases responded to sweatshop allegations, addressed women’ s issues, stressed the company’ s code of conduct, and broadly denied exploitation of underage workers. A more lengthy press release, entitled “Nike Production Primer” answered a series of allegations with detailed information and footnoted sources. Another release drew attention to the favorable Young report and invited readers to consult it on-line. A letter to the presidents and athletic directors of those colleges sponsoring Nike products defended the company’ s labor practices. And company officials sought to rebut specific charges in letters to the editor and to nonprofit organizations.

The complaint alleges that, in the course of this public relations campaign, Nike made a series of six misrepresentations regarding its labor practices: (1) “that workers who make NIKE products are . . . not subjected to corporal punishment and/or sexual abuse;” (2) “that NIKE products are made in accordance with applicable governmental laws and regulations governing wages and hours;” (3) “that NIKE products are made in accordance with applicable laws and regulations governing health and safety conditions;” (4) “that NIKE pays average line-workers double-the-minimum wage in Southeast Asia;” (5) “that workers who produce NIKE products receive free meals and health care;” and (6) “that NIKE guarantees a ‘ living wage’ for all workers who make NIKE products.” In addition, the complaint alleges that NIKE made the false claim that the Young report proves that it “is doing a good job and ‘ operating morally.’ ”

The first and second causes of action, based on negligent misrepresentation and intentional or reckless misrepresentation, alleged that Nike engaged in an unlawful business practice in violation of Business and Professions Code section 17200 by making the above misrepresentations “In order to maintain and/or increase its sales and profits . . . through its advertising, promotional campaigns, public statements and marketing . . . .” The third cause of action alleged unfair business practices within the meaning of section 17200, and the fourth cause of action alleged false advertising in violation of Business and Professions Code section 17500. The prayer sought an injunction ordering Nike “to disgorge all monies” that it acquired by the alleged unlawful and unfair practices, “to undertake a Court-approved public information campaign” to remedy the misinformation disseminated by its false advertising and unlawful and unfair practices, and to cease “[m]isrepresenting the working conditions under which NIKE products are made . .”

Nike and the individual defendants filed demurrers to the complaint challenging the application of Business and Professions Code sections 17200 and 17500 and contending that the complaint is barred by the First Amendment to the United States Constitution and article I, section 2(a), of the California Constitution. The trial court regarded the constitutional distinction between commercial and noncommercial speech to be dispositive. Following a hearing, the court sustained the demurrers without leave to amend and entered a judgment of dismissal from which the plaintiff appeals.

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