Nike gagged.

Firms can be found liable for deceptive public statements, justices decide. Critics call the decision a blow to free speech.

The California Supreme Court ruled that Nike Inc. can be sued by a man who claims the company broke advertising laws with an ad campaign that defended the wages, treatment, and safety conditions of workers at overseas factories.

The lawsuit says Nike falsely stated that it guarantees a "living wage" to all workers, that its workers in Southeast Asia make twice the local minimum wage and are protected from corporal punishment, and that it complies with government rules on wages, hours and health and safety conditions.

Nike Can't Just Say It, Court Rules
"Nike's commercial statements about its labor practices cannot be separated from its noncommercial statements about a public issue because its labor practices are the public issue," Brown wrote.

Labor and environmental groups presented arguments against Nike in the case, Kasky vs. Nike, while the American Civil Liberties Union sided with the corporation.

The case arose in 1996 with a report on "48 Hours," the CBS television news program, about conditions in factories under contract with Nike in Southeast Asia. Articles about the workers who make Nike shoes also appeared in several newspapers.

The stories cited claims that the workers were paid less than the applicable minimum wage, required to work overtime, subject to physical, verbal and sexual abuse and exposed to toxic chemicals.

Nike countered in public statements, ads and letters that the factory workers were paid in accordance with local labor laws and on average received double the minimum wage plus free meals and health care.

Marc Kasky, 57, who has managed a foundation that preserves San Francisco's Ft. Mason, decided to sue Nike after reading an article in the New York Times about the company's contract factories.

If Kasky ultimately prevails at trial, Nike could be ordered to turn over an unknown amount of profits it has made in California. The money then could be distributed either to charities or to consumers who bought Nike products, lawyers said.

The state high court relied on U.S. Supreme Court precedents to distinguish speech that is protected by the 1st Amendment from commercial speech, which government can regulate and ban if it is false.

The California court said speech can be commercial even if it is not in the form of an advertisement.

Communications are subject to government regulation if they are made by a commercial speaker, such as an officer of a company, intended for a commercial audience and contain representations of fact that are commercial in nature, Justice Kennard wrote for the majority.