Constitutional Law
May 31, 2002
Institutional Advertising Must Be Factually Accurate
Focus Column - By Charles S. Doskow - A California Court of Appeal held, in an opinion in 2000, that truth was irrelevant to the decision in a lawsuit in which the prime allegation was untruth. Commentators found that to be, or at least to resemble, a glaring anomaly. The California Supreme Court now has found the anomaly to be an unacceptable one, at least in the area of athletic shoes, Asian manufacture and corporate self-defense.
Charles S. Doskow
Dean Emeritus and Professor of Law, University of La Verne College of Law
Email: dosklaw@aol.com
Harvard Law School
Charles is a past president of the Inland Empire Chapter of the Federal Bar Association, and in 2012 was awarded the chapter's Erwin Chemerinsky Defender of the Constitution award.
By Charles S. Doskow
A California Court of Appeal held, in an opinion in 2000, that truth was irrelevant to the decision in a lawsuit in which the prime allegation was untruth. Commentators found that to be, or at least to resemble, a glaring anomaly. The California Supreme Court now has found the anomaly to be an unacceptable one, at least in the area of athletic shoes, Asian manufacture and corporate self-defense.
The 1st District Court of Appeal held in 2000 that Nike's published defenses of its employment practices could not be held subject to standards of accuracy and fairness as the publications were not commercial speech. Kasky v Nike Inc., 79 Cal.App.4th 165 (2000), review granted, 97 Cal.Rptr.2d 511 (2000).
In so holding, the court invoked accepted constitutional doctrine that, in areas of speech not subject to government regulation (or at least not subject to strict scrutiny), the truth of the statements is irrelevant. As a result of the holding, the court dismissed the case against Nike. The Supreme Court granted review on June 21, 2000.
The case arose out of Nike's published defenses of the labor practices of its Asian subcontractors, which manufacture the bulk of its sports shoes. Activists had alleged that Nike's footwear was manufactured under conditions that violated foreign labor laws. The statements in question were Nike's denials of the charges, published as press releases, letters to newspapers, a letter to university presidents and athletic directors and other documents.
By determining that the defenses were not commercial speech but commentary on issues of public interest, the Court of Appeal cut off the plaintiffs' assertion that the statements were false and insulated Nike from liability.
A four-to-three majority of the California Supreme Court has now disagreed, over vigorous dissents. Kasky v Nike, Inc., 2002 DJDAR 4757 (Cal. May 3, 2002). Concluding that the statements did in fact constitute commercial speech, the court held them subject to scrutiny under California's false-advertising statutes, Business and Professions Code Sections 17204 and 17535. If the statements are found to be false or misleading, Nike could be enjoined and fined. Decided on demurrer, the case will now either be further appealed or remanded for trial.
The U.S. Supreme Court, in interpreting the First Amendment's guarantee of free speech, has carved out categories of speech for differing levels of protection based on the constitutional value assigned to the speech. Doctrine developed over the last 40 years has found commercial speech to be constitutionally protectable as long as it is neither false nor misleading.
The other side of the coin is that speech that does not fit into one of the categories receiving a lesser degree of protection (e.g., fighting words or words that constitute a clear and present danger) is subject to strict scrutiny, which, as a practical matter, means that it is virtually free of regulation.
When the Court of Appeal found that Nike's arguments were not commercial speech, it gave them the high degree of protection that is given to political speech, which the courts will not test for accuracy.
Clearly, the determination of what constitutes commercial speech is the key to the Nike issue, and the California Supreme Court opinion attacks it in detail. The U.S. Supreme Court has said that the core of commercial speech is speech proposing a commercial transaction but that other speech can be commercial.
What causes the division in the Nike case is that the subjects addressed are issues of public interest and policy. As such, they can be distinguished from an athletic shoe advertisement.
The majority's analysis, which is phrased as whether the particular statements could be subject to the Business and Professions Code provisions, was a three-factor test examining the speaker, the intended audience and the content of the message.
Speaking through Justice Joyce Kennard (Chief Justice Ronald George and Justices Kathryn Werdegar and Carlos Moreno concurring) the court found the first two factors to lead to the conclusion of commercial speech. The speaker was a business corporation in the business of selling its products; the audience was its potential customers.
As to content, the court found that, in addressing matters of its own business, Nike was in a position to verify the truth of its statements. It considered this fact in meeting the argument that too strict a standard for speech of this type could have a chilling effect.
"Because ... Nike was acting as a commercial speaker, because its intended audience was primarily the buyers of its products, and because the statements consisted of factual representations about its own business operations, we conclude that the statements were commercial speech."
The dissenters (Justices Ming Chin, Marvin Baxter and Janice Brown) disagreed. In a 27-page dissent, Brown attacked the U.S. Supreme Court's commercial speech doctrine, finding it to be without precedent and having been plucked out of thin air. The doctrine fails, she says, to "account for the realities of the modern world - a world in which personal, political and commercial arenas no longer have sharply defined boundaries."
But even applying the commercial speech doctrine, her dissent disagrees with the result, contending that the speech addressed a public issue and in fact constituted mixed commercial and noncommercial speech. Analyzing the contents, she found the noncommercial elements to predominate and would have granted the statements the full protection of the First Amendment.
The dissent raises one significant and challenging argument: that the court's ruling creates an uneven playing field for the two sides of the debate. Those attacking Nike can speak freely, not subject to government regulation, while Nike must be subject to unfair-competition and false-advertising laws. Brown characterizes this as favoring some speakers over others and unduly limiting a business's ability to defend itself. Chin's more compact dissent makes the same argument.
The result of the court's holding is that institutional advertising, in which every business has a constitutionally protected right to engage, will be held to the same standards as all other types of advertising. Corporations will have to assure that all statements are factually accurate and will have to frame their lobbying efforts in terms of opinion.
The effect of the holding on industry lobbying efforts can well be imagined. Unless privileged, public statements of the economic effects of proposed legislation may well be held to a "not misleading" standard.
The U.S. Supreme Court's test for commercial speech is cited by both opinions and used by neither. In Bolger v Young's Drug Products, 463 U.S. 60 (1983), the court used three principles: The sole fact that the pamphlets were advertisements was not determinative; references to a specific product did not necessarily make the speech commercial; and the economic motivation of the publisher should be a factor. The court found the mailing to be commercial under these principles.
What distinguishes Bolger is that by finding the speech (pamphlets issued by a condom manufacturer) to be commercial, the court protected it from prosecution.
The Court of Appeal used Bolger to immunize Nike because it interpreted Nike's statements as intended to project a favorable corporate image, as distinguished from simply selling or promoting goods. The favorable corporate image projection took Nike out of the commercial realm into a protected area.
It is this distinction that the majority rejects, although with a somewhat different test. In essence, the majority is holding that if the business of a corporation is to make money, whatever it does is intended to further that result.
The case does not address publications by a business that address subjects unrelated to its business or straight policy issues on which management may have strong views. Would the second and third elements of the court's test insulate such statements and characterize them, accurately, as protected speech?
Brown makes several suggestions for modifying current constitutional doctrine in this area, arguing for a "more nuanced inquiry that accounts for the realities of today's commercial world." There could be an area of intermediate scrutiny where commercial and noncommercial speech are intertwined. False or misleading speech could be actionable so long as liability is not imposed without fault, a test which is less demanding than simply "false or misleading." Or doctrine could allow the states to bar all false or misleading representations about a product or service.
Pleading guilty to the majority charge of seeking her own "magic formula or incantation" in this area, Brown suggests approaches to the law that the U.S. Supreme Court may consider if this issue reaches those hallowed halls.
Charles S. Doskow is dean emeritus and professor of law at the University of La Verne College of Law in Ontario.
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