Amicus Curiae Brief — Nike, Inc. v. Kasky

Supreme Court brief2003

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No. 02-575.

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In The

Supreme Court of the Gnited States

NIKE, INC., et al.,

Petitioners,

MARC KASKY,

Respondent.

On Writ Of Certiorari To The

Supreme Court Of California

BRIEF OF AMICI CURIAE THE STATES OF

CALIFORNIA, ALASKA, ARIZONA, CONNECTICUT,

FLORIDA, ILLINOIS, LOUISIANA, MAINE,

MARYLAND, MINNESOTA, NEW MEXICO,

NEW YORK, NORTH DAKOTA, OHIO, OKLAHOMA,

SOUTH DAKOTA, VERMONT, AND WEST VIRGINIA

AND THE COMMONWEALTH OF PUERTO RICO

IN SUPPORT OF RESPONDENT

BILL LOCKYER HERSCHEL T. ELKINS

Attorney General of Senior Assistant Attorney

California General

MANUEL MEDEIROS RONALD A. REITER

State Solicitor General Supervising Deputy

RICHARD M. FRANK Attorney General

Chief Assistant Attorney (Counsel of Record)

General State of California

455 Golden Gate Ave.,

11th Floor

San Francisco, CA 94102

(415) 703-5511

(415) 703-5480 (Fax)

April 4, 2003

[Additional Counsel Listed On Inside Cover]

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

yo \)

GREGG D. RENKES

Attorney General

State of Alaska

TERRY GODDARD

Attorney General

State of Arizona

RICHARD BLUMENTHAL

Attorney General

State of Connecticut

CHARLES J. CRIST, JR.

Attorney General

State of Florida

LISA MADIGAN

Attorney General

State of Illinois

RICHARD IEYOUB

Attorney General

State of Louisiana

G. STEVEN ROWE

Attorney General

State of Maine

J. JOSEPH CURRAN, JR.

Attorney General

State of Maryland

MIKE HATCH

Attorney General

State of Minnesota

PATRICIA A. MADRID

Attorney General

State of New Mexico

ELIOT SPITZER

Attorney General

State of New York

WAYNE STENEHJEM

Attorney General

State of North Dakota

JIM PETRO

Attorney General

State of Ohio

W.A. DREW EDMONDSON

Attorney General

State of Oklahoma

LAWRENCE E. LONG

Attorney General

State of South Dakota

WILLIAM H. SORRELL

Attorney General

State of Vermont

DARRELL V. MCGRAW, JR.

Attorney General

State of West Virginia

ANABELLE RODRIGUEZ

Secretary of Justice

Commonwealth of Puerto Rico

TABLE OF CONTENTS

Page

Ita natennnnemnenccanennnncnnseaneet 1

een neepmncemamennennnncoqanaee 2

SUMMARY OF ARGUMENT..................c::csceceeeeeeeeees 2

SUITE ti tiattteetnnenticaieenenseensenensssesnssneneseneeeseonees 3

NIKE’S FALSE STATEMENTS ABOUT ITS

FOREIGN LABOR PRACTICES DISSEMI-

NATED AS PART OF A PUBLICITY CAM-

PAIGN TO PROMOTE PRODUCT SALES IS

FALSE COMMERCIAL SPEECH THAT MAY

BE CONSTITUTIONALLY PROSCRIBED ....

A. The Complaint’s False Advertising Alle-

gations Are Deemed True On Review Of

B. Nike Has Manufactured An Image Of So-

cial Responsibility As A Means Of Pro-

moting Product Sales ...................c:cs0000++

1. Image Promotion Is An Essential As-

pect Of Product Promotion.................

2. Nike Has Cultivated A Corporate Im-

age Of Social Progressivity As A Mar-

keting Tool To Promote Product Sales ..

C. The First Amendment Does Not Protect

A Company’s False Statement Of Fact

About Its Own Product Or Business Op-

ee eo a

1. The Commercial Speech Doctrine.......

2. The California Supreme Court Prop-

erly Applied Commercial Speech Doc-

iI iets heeieiiataintieentinaamngnenenaneenessnscsccsaceneee

TABLE OF CONTENTS - Continued

Page

Il. PRIVATE FALSE ADVERTISING ACTIONS

FILED ON BEHALF OF THE GENERAL

PUBLIC DO NOT THREATEN COMMER-

CIAL SPEECH............ccccceeeeeeeeeeenenennneneeenennnes 18

A. A Proper Respect For States And Their

Judiciaries Requires That Any Challenge

To Private False Advertising Suits As

Chilling First Amendment Rights Should

Have Been Raised First In California

CEIIOD ocecocccccccsocescecccccccsscsccsescosssscosesssosese 18

B. Statutes Providing Remedial Actions To

Prevent The Dissemination Of Deceptive

Advertising Do Not Chill First Amend-

ment Rights..............:-ssceeeeeeeennenteessenenes 21

1. False Advertising Law Is Not Subject

To An Over Breadth Challenge........... 21

2. The Challenged Statute Is A Reason-

able Remedy For Addressing Decep-

tive Advertising By Commercial

Enterprises ...........::0eeeeeeeeeeeneeneeeeseenees 22

3. Actions For Discretionary Equitable

Relief Do Not Impermissibly Chill

First Amendment Rights When They

Are Directed To False Statements

About The Defendant's Own Com-

mercial Operations..............-...esesseeeees 26

CONCLUSION .........ccccceseeeeceeseeeeeeeeseeeeenenennesennennnanes 29

iil

TABLE OF AUTHORITIES

Page

CASES

Adarand Constructors, Inc. v. Mineta, 534 U.S. 103

SE hesshecietraintsatiesaieinmaaiapinditaai teen tatiactat ii 19

Bank of the West v. Superior Court, 833

Sp saeaiatientaee ies so ai arias 24

Barrows v. Farnum’s Stage Lines, I 1

~via aatendann dnd

Bates v. State Bar of Arizona, 433 U.S. 350 (1977)........... 10

Bigelow v. Virginia, 421 U.S. 809 (1975).....cccccccccccoccccceeees 10

Board of Trustees of the State Univ. of New York

Fox, 492 U.S. 469 (1989) .............ccccccccccccoscececcee. rt 12,17

Bolger v. Youngs Drug Products Corp., 463 U.S. 60

Seria henieiceciestertestenteiceseneetetinmeiteneneinaisienteaanieniteaiiamenieeienane 10, 11,17

Briggs & Stratton Corp. v. Baldrige, 7

(7th Cir. — 15

Campbell v. Louisiana, 523 U.S. 392 (1998) ..........ccccccecee. 18

Cardinale v. Louisiana, 394 U.S. 437 (1969) ..........c000000.-. 19

Central Hudson Gas & Electric Corp v. Public

Service Com., 447 U.S. 557 (1980) ........ccccscccccecoseeeee 10, 21

Chern v. Bank of America, 544 P2d 1310 (Cal.

ioe icciecericenacitecedettedennatiinteiiatattniicsecssmamisamaiiacaees 24

City of Cotati v. Cashman, 52 P.3d 695 (Cal. 2002)........... 25

Committee on Children’s Television, Inc. v. General

Foods Corp., 673 P.2d 660 (Cal. 1983) ..........cccccccscee. 3, 22

Cortez v. Purolator Air Filtration Products C.

P.2d 706 (Cal. 2000) ......ccccecscossocsosesseesscesees os 24

TABLE OF AUTHORITIES - Continued

Page

Davis v. Monroe County Bd. of Ed., 526 U.S. 629

SaTTTTTTTTT osteicinscensessesieniateneat taint taatteetasianaaaiaeaaeeae ined aianliaieinaataiti 3

Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc.,

OI os inenirrrrrterreaienitmnmemnel 27

DuPont Merck Pharmaceutical Co. v. Superior

Court, 92 Cal.Rptr.2d 755 (Cal. Ct. App. 2000)............. 25

Equilon Enterprises, LLC v. Consumer Cause, Inc.,

ee 25

Friedman v. Rogers, 440 U.S. 1 (1970)..........ccccccceeeeeeeeeees 15

Garrison v. Louisiana, 379 U.S. 64 (1964) .............ccccccceeee 26

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974).......... 26, 27

Hoffman Estates v. Flipside, Hoffman Estates, 455

a nace isineelenieetendiareaieenraemanineiaianeaianamineniel 21

Ibanez v. Florida Dept. of Bus. and Prof. Reg., Bd.

of Accountancy, 512 U.S. 136 (1994)............ccccccesseeeeeeees 15

In re Primus, 436 U.S. 412 (1978) ...............ccccecesseeeeeeeeeeees 10

In re RMI, 455 U.S. 191 (1982) ........cccccccccccccccsccssssccscsseeees 29

Kasky v. Nike, Inc., 45 P.3d 243 (Cal. 2002)........ 1, 3, 18, 29

Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d

937, 2003 Lexis 1301 (Cal. 2003).................ccccceceeeeeeeeees 24

Kraus v. Trinity Management Services, Inc., 999

P.2d 718 (Cal. 2000) ...........scccscssereeseseeneenseneensees 20, 23, 24

Los Angeles Alliance For Survival v. City of Los

Angeles, 993 P.2d 334 (Cal. 2000) ..............ccccccceeeseeeeeees 21

Marvin v. Trout, 199 U.S. 212 (1905) ..............ccceceeeeeeeeeeeee 23

McGoldrick v. Compagnie Generale Transatlan-

Rhereen, SED WE. GBD CR GD ccccscccccsssescecscsssssssssecssscsssssesenes 18

TABLE OF AUTHORITIES -— Continued

Page

National Commission on Egg Nutrition v. FTC, 570

tg EERE RE a oe 11

Navellier v. Sletten, 52 P.3d 703 (Cal. 2002).................0000. 25

New York Times Co. v. Sullivan, 376 U.S. 254

Sarre teocsnaveinttetenanatandiideddiveigimenteanausniaieeemenenneimtemsanies 17, 27

Office of Communication of United Church of Christ

v. FCC, 359 F.2d 994 (D.C. Cir. 1966)..........ccccccccccceeeeeee 23

O’Connor v. Superior Court, 223 Cal.Rptr. 357 (Cal.

ENED: STII chatatonnstnceiennenacsuniennimeiemnenmnaniabensenisntanmieies 22

Peel v. Attorney Disciplinary Comm’n of Ill., 496

SIT intchernicenbhceenenintnssinieaieaiininaacaieneriaeaamnstiaiinatilaial 15

People v. Superior Court, 507 P.2d 1400 (Cal. 1973)...22, 24

Pittsburgh Press Co. v. Human Rel. Com., 413 U.S.

ae tctiractineniimenmentenensnetneiaiiians sceaansimmneupecdainmasiniaes 17

Scheuer v. Rhodes, 416 U.S. 232 (1974) ........cccccccceececeeeeeees 3

Shadoan v. World Sav. & Loan Assn., 268 Cal.Rptr.

Se ee I) UIE cicrninnetrcmnnnetnensecieesenaneienneninnniiaenes 24

Sprietsma v. Mercury Marine, 123 S.Ct. 518 (2002)......... 18

Thompson v. Western States Med. Cent., 122 S.Ct.

SITETy GHEE entineensenasomsnennienssetonnieneseesnecnemmetnininenetanmnenaies 9

Trafficante v. Metropolitan Life Ins. Co., 409 U.S.

Se a Ul nsemrunemtnenmnnsnencnennseenennnnnsnenmenanenenesnsenasenetneiatenets 23

Va. State Bd. of Pharmacy v. Va. Citizens Consumer

Council, Inc., 425 U.S. 748 (1976) .............00.. 9, 27, 28, 29

Zauderer v. Office of Disciplinary Counsel, 471 U.S.

EEE ia nenencnsssdesvenionsnsanienuetenssntemustersmmmeinnmrmneel 9, 10

TABLE OF AUTHORITIES - Continued

Page

STATUTES

7 U.S.C. § 6501 et seq. (2003).........::cececeeeeeeeeeeeeeereneeeeeeeeees 14

QB U.S.C. $ 240B(b) ........0eeercrcrccrrscscsscserrereeessesseseeseonnees 19, 20

15 U.S.C.A. § 1125(1)(A) (2008) 0.0... ccceeeeeeeeeeeeeeeeeesereeenens 13

15 U.S.C.A. § 1125(1)(B) (20038) .........cccceeeeeeeeeeeeeneeeeeeennees 14

Ariz. Rev. Stat. Ann. § 41-1976 (2003)...........::cccceeeeeeeeens 13

California Business & Professions Code

B 2 TBOO ...ccccccocccceccsvesevecssvssocesssseosessssssssossossooosssoonssoonooss 22

B RFBBB occccccoscccccecccecscossecccosocossonesssssscsssecsssonosoooes 20, 22, 23

B 1 TBOS ...ccccoccoccressseccescsccecvessonsssssossssosossssosoosssosessosoosecoses 22

B 1TBOGD ....ccccccosccessvvesssvecessessooccssosssososssesssessooonsssssosssososes 24

B 1 TBOD ...cccccccocccesssecarecccescossossssossosessossssoososoosssscoossssooses 20

B 1 FBOO ....cccoccccccesscccsscsrssecccssconessososesssosssosoossoosssssoossoonses 22

B 2 TGBB ....cccoccocccescccecesevesevcssoossssssossosoosesssososooossoosssssoses 13

§ 175B3B.7 ........scccccccccccccrscsssvsscsceseserseenceesssscossossssonnssenenees 14

8 A FBBB ..cocccecccccesssccssccccscccecoessssossssssssossonsssoosssooososess 22, 23

B AFGBB occcocccccssccccsssccccescescssosossssessssssssssconssscoossososoeses 20, 24

§ 17BGOD .......crcccscccssseseevsesessscssovssessvossssosssssssonsesosssssoossonses 13

§ 1750.5 .....c.ccccccssocssrsvcessssrsesossssssessssosenssonssessssssosoossonees 13

California Civil Code

§ 1770(aN2) amd (3) ........ceccseeereceereesreeseeeeeesssnennesennenens 13

§ 177O(AN4).....00ccceerrccsrrcccsscorssesscsseecssrsessrssesenesesssssoosssenss 14

vii

TABLE OF AUTHORITIES -— Continued

Page

California Code of Civil Procedure

EE Ree ee ene ee Oe em CRT 25

| EE nee En NR eR 25

ERR eee CREE ea NC SE 25

PUTT wiielaisenttetiiiiailitiniiniabiniaitascnaiitiialiae ppvenscesentucss 25

STII isteach 25

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EEE er a ne re ETS Bene ae 3

SO iciieceatihiiiieiia i aiaie sdecispatanniatannionnainied 25

| _REeee ae aCA 24

California Health & Safety Code § 110910 (West

SR ERR ARO I at ae 14

California Labor Code

SEERA ase a ne eT 13

ERATE ETE eee One RC 13

I Riise iia i 13

Cal. Stats. 1933, ch. 953, § 1, at 2482..000.....cccccceeceeeeeeeee 20

Cal. Stats. 1972, ch. 244, § 1, at 494 0.0. ee sseseees 20

Colo. Rev. Stat. § 35-11.5-101 et seg. (2002) ........cccccceceeeee 14

Colo. Rev. Stat. Ann. § 6-1-105(d) (2002)..........cccccccceceeseeee 14

District of Columbia Code

ESET a ET 13

pe ID ccccnsscnscncccssnesennsnemcetensentnentnsnmisemeencsanes 14

Vili

TABLE OF AUTHORITIES -— Continued

Page

Florida Statutes

Ch. 403.7193 (2OOD) ...........ccccccccccccscccrrscceeceerereeesrnreseseees 13

ha, 41B.GB1 (DOOR) ....cccccccccorcccesscccccssccssissccsesessesceescsesesees 13

Ch. 501.04'7(2) (2002)...........ccccccccssssrsrseccssceeseseesssessecssses 13

Gh. GO1.GT7 (BOOB) .....ccccccrrccrsccccreccscrsecscoccccvcsesscsceresscseesons 14

ch. 504.23 et seq. (2002) ........ccccccceeseeereeeeeeteeeteeeeeeeeeeeeees 14

Ch. 506.06 (BOOB) .......ccccrccsserrcsserssessresseccrccverecereseesescescees 13

Ch. 601.90 (BOOB) ....cccccsccsesscssercesresorssrscccsccseessseseesssresecees 14

Georgia Code Annotated

§ D-21-4 (2OOD).........csecrroccrscrsorsssscccsseccecsssseessserssssenssesecs 14

§ 10-1-372(a)(4) (ZOOS) 0.0... eeesesceceseeseeseteesensresseneeees 14

§ 10-1-393(b)(4)(A) (2OOB) .........cceceeeeceeesreeeeeeeeneeeeeseeetnees 14

Hawaii Revised Statute

§ 481A-3(a)(4) (2002)..........cccecceecserreeesereenseeeeseeseenenesnnes 14

§ 48G6-120.6 (2002)............ccccecccccrssssseceeeercesereessssssceesssees 14

Illinois Compiled Statutes Annotated

5 10/2( aN 4) (ZOOS) .......000 ccccccecssscesccssccssecscerererecessessesssooes 14

5 10/2(a)(2)(3), (5) (2OOS).........ccccrccsesereceeseeesereeseeseerereees 13

Maryland Code Annotated, Bus. Reg.

§ 1-404(a), (b)(1)-(2), (b)i)-Civ) (2002) .........eeeeeeeeereeeeees 13

§ 1-404(c)(ii) (2OO2) ..........ccececceerreeeeseeeeerteneesnreeeesterensens

TABLE OF AUTHORITIES - Continued

Page

Maryland Code Annotated, Com. Law

Cf ER NeETE 13

Michigan Compiled Laws

EE TE 14

§ 445.903(3)(1)(dd, ee) (2002)... cccccccccccecceccsesseceeeeeece. 13

Minnesota Statute Annotated

Ee ee eT 14

Mississippi Code Annotated

§ 75-24-5(2)(b)-(c), (€) (2008) ......ccccccccsccscescecescecceecseees 13

New Hampshire Revised Statute Annotated

FT 13

En 13

IE OP CD cnccecnsnecccnsececsccsccosscesnecsseccsccsesnnsanmss 14

ee ee ae: 13

New York General Business Annotated

REE ne RL Ne RRP PL OES 13

New York Envtl. Conserv. Law

§ 27-0717 (McKinney 1997) .0........ccccccccccccccsesccececececececes 13

TABLE OF AUTHORITIES -— Continued

Page

Ohio Revised Code Annotated

§ 5109.17-5109.18 (2002) ...........ccccceeeeeeeeeees naanitiabaiaoaniiiehtie 13

Oregon Revised Statute

§ OB1.B10 (BOO1) .....ccceccceserovevccscsscesccccccccccssonssosessesesssssece 13

Texas Agriculture Code Annotated

§ 18.005 (Vernon’s 2001) ...........ccccceeeeeeesseereeeeeeeteeteneeeees 14

Texas Business & Com. Code Annotated

§ 17.46(DX4) (2OOS)..........cccrcerereccccrcvcscesserereecserssssserersooes 14

§ 17.46(b)(2)-(3), (5) (2003)... ceeceeececeseeesseereeeeseseneeenes 13

Utah Code

§ 13-1la-3( 1d) (2OOD) .............ccceccsccsesseeererreceesesssssseeees 14

Virginia Code Annotated

§ 3.1-385.2 (Michie 2002) .............cccccrcreeceeecseersesessees 14

§ 61.B-10B (BOOS) .....cccccvececccccesceccsosscsscesccoscvcsssscsseosccooos 13

§ 59.1-200(A)(2)-(3), (5) (20038) ........eeeeeeeeeteeteeeeneneeeeeeees 13

§ 59.1-200(A)(4) (2OOB)..........ccccccececsscescceeerererreeseesesssenees 14

West Virginia Code Annotated

§ A4GA-B- LOB IN D)......ccccccsescesesrorssesscssccccroscocsssssecersoesososeees 13

§ 46A-6-102(f)(4) (2002)......... eeeeeeceeeeeeeeeeeeeeeeneeeeeeeeeenees

TABLE OF AUTHORITIES - Continued

Page

Vermont Statute tit. 6

8 EER eR Se TR ELIOT EN 14

Wash. Revised Code

ETE ae eee eam ey 14

OTHER AUTHORITIES

I 3

16 C.F.R. § 260.1 et seq. (2003) .0.............ccccccccesesssscccceseceees 13

a ee ey 14

EET ee ee eT. 20

A. ALLEN, Corporate Advertising — Out of the Ivory

Tower, Into Marketing, SOURCEBOOK ON CORPO-

RATE IMAGE AND CORPORATE ADVOCACY ADVERTIS-

ING 570 (Federal Trade Commission 1978)..................... 5

CHRIS GENASI, WINNING REPUTATION: How To BE

YOUR OWN SPIN DOCTOR 38 (2002) 00......cccccccccccceceeeeee 6,17

E. H. SCHOPLER, Rights in Union Label, Shop Card,

or Other Insignia Denoting Union Shop or

Workmanship, 42 A.L.R.2d 709 (1955) .o....cecccccccccceeeeceee 13

GRAHAME DOWLING, CREATING CORPORATE REPUTA-

TIONS: IDENTITY, IMAGE, AND PERFORMANCE (2001)........ 5

2 HARPER, JAMES & Gray, THE LAW OF TorRTs (2d

Ee Te ee ee 27

James Curtis, Public Relations: PR Takes Center

Stage, CAMPAIGN (March 10, 2000), 2000 WL

REESE aS ae ns ce a ne g

xii

TABLE OF AUTHORITIES - Continued

Jim Kartalia, Reputation At Risk?, 47 Risk MAN-

AGEMENT No. 7 (July 1, 2000), 2000 WL 8276979 .......... 6

JOE MARCONI, REPUTATION MARKETING: BUILDING

AND SUSTAINING YOUR ORGANIZATION’S GREATEST

Agee D (BOOB) ..0.0cccccccocccccccvccescesscccsscssesesessesssvssessoosooess 5, 7

N. GREGORY, MARKETING CORPORATE IMAGE: THE

Company AS YOUR NUMBER ONE PRODUCT 96 ,

(1991) ..ccccccccccccrccocescccccceccesscccccccsccccessssvonsssscssssssssssssosossoses

RANDY SHAW, RECLAIMING AMERICA: NIKE, CLEAN

AIR, AND THE NEW NATIONAL ACTIVISM ft 7

ROBERT GOLDMAN & STEPHEN PAPSON, NIKE CUL-

TURE: THE SIGN OF THE SWOOSH 19 (1998)

S. GARONE (ed.), Designing A Consumer Awareness

Campaign, SHAPING A SUPERIOR CORPORATE IM-

AGE: A CONFERENCE REpPoRT 40 (Conf. Bd., Inc.

S. HOWARD, CORPORATE IMAGE MANAGEMENT: A

MARKETING DISCIPLINE FoR THE 21ST CENTURY

BIT (1BBB) .ccrececsccecccoccccsescsscocessoscosesscccsssevenesssssosoossosooocoes

S. SAUERHAFT & C. ATKINS, IMAGE WARS: PROTECT-

ING YOUR COMPANY WHEN THERE’S No PLACE TO

HIDE 62 (1989).............ccccssscccccssesssscseerecsereeessssssseeecesserers

Steve Suo, Nike Takes Own Advice In Changing Its

Slogan, PORTLAND OREGONIAN (January 4, 1998),

1998 WL 417108G..............ccccccsssseccccrssscccccesseseeeeessssscsseess

Su-Ping Lu, Corporate Codes of Conduct and the

FTC: Advancing Human Rights Through Decep-

tive Advertising Law, 38 COLUM. J. TRANSNAT'L L.

GOB (2OOO)................0sseecrecssscrscccereseeeseserssssesscsseecesesersesess

INTRODUCTION

Image advertising has become an essential marketing

tool stimulating product purchase by associating, often

with great subtlety, use of the product with consumer

achievement of the lifestyle, values, or aspiration pro-

moted. Plaintiff claims that Nike’s well-cultivated image

as a socially responsible company is instrumental to its

successful product promotion. When sales were threatened

by charges that Nike products were manufactured under

execrable conditions in foreign sweatshops, Nike allegedly

undertook a publicity campaign replete with false state-

ments of fact about its own manufacturing operations to

deceive the public about the true conditions under which

its athletic footwear and apparel are produced in order to

rehabilitate its image and foster product sales.

This case is before this Court on a review of the

pleadings and is thus framed entirely by plaintiff’s com-

plaint. Since the material allegations of the complaint

must be deemed true on demurrer (motion to dismiss), the

California Supreme Court concluded that the complaint

stated a cause of action under the state’s false advertising

law and alleged facts constituting false commercial speech

that could be proscribed. Kasky v. Nike, Inc., 45 P.3d 243,

262 (Cal. 2002). California’s high court rejected Nike’s

effort - renewed in this Court and entirely unsupported by

the record — to recast this matter as a debate of ideas and

opinion about economic globalization: as framed by the

pleadings, this case is only about Nike’s ability to exploit

false facts to promote commercial ends. Moreover, since

false commercial speech may be prohibited, California may

allow private party suits seeking limited equitable reme-

dies on behalf of the general public to redress false adver-

tising.

INTEREST OF AMICI

All states prohibit the dissemination of untrue state-

ments to facilitate the sale of goods and services. With

increasingly sophisticated modern marketing techniques,

products and services are promoted not only by statements

about price and performance but also by representations

about the image of the product and the conduct of the

manufacturer. The Court’s opinion may substantially

affect the application of the First Amendment to false

advertising laws and, thus, may affect future law enforce-

ment efforts. Moreover, challenges to state law that could

have been, but were not, raised in the lower courts should

not be vetted for the first time in this Court lest states be

deprived of a full opportunity to defend their laws. Fur-

thermore, California has a special interest in upholding its

statute permitting private parties to seek limited equita-

ble remedies on behalf of the general public to staunch the

dissemination of false commercial speech.

SUMMARY OF ARGUMENT

The complaint alleges that Nike engaged in a public-

ity campaign asserting objectively verifiable false facts to

mislead consumers about Nike’s labor practices in order to

assuage consumer concerns and promote the sale of Nike

products. The material allegations of the complaint are

deemed true on a review of the sufficiency of a pleading;

there is no record other than the complaint. The California

Supreme Court properly concluded that the complaint

alleged false commercial speech that could be constitu-

tionally redressed under state false advertising law.

Furthermore, state procedure allowing private parties to

seek limited discretionary equitable relief to remedy false

commercial speech without proof of damages or actual

malice does not impermissibly chill commercial speech,

and petitioner's contrary argument improperly raised for

the first time in this Court should not be entertained.

ARGUMENT

I. NIKE’S FALSE STATEMENTS ABOUT

FOREIGN LABOR PRACTICES DISSEMI.

NATED AS PART OF A PUBLICITY CAM-

PAIGN TO PROMOTE PRODUCT SALES IS

FALSE COMMERCIAL SPEECH THAT MAY

BE CONSTITUTIONALLY PROSCRIBED

A. The Complaint’s False Advertising Allega-

tions Are Deemed True On Review Of A

Demurrer

This case is before the Court on the review of a de-

murrer. No evidence has been introduced, and no fact has

been adjudicated. A demurrer, like a motion to dismiss

under federal practice, tests whether a complaint articu-

lates a cause of action. See Cal. Civ. Proc. Code § 430. 10(e);

Fed. R. Civ. P. 12(b)(6). In assessing the sufficiency of the

complaint, the California Supreme Court was required to

accept the truth of the complaint’s allegations. See Kasky

45 P.3d at 247. Similarly, this Court held that in reviewing

a motion to dismiss under federal standards “‘we must

assume the truth of the material facts as alleged in the

couiplaint.’” Davis v. Monroe County Bd. of Ed., 526 U.S.

629, 633 (1999). The plaintiff’s ability actually to prove its

allegations 1s not at issue under either federal or state

practice. See, e.g., Scheuer v. Rhodes, 416 U.S. 232. 236

(1974); Committee on Children’s Television, Inc. v. Sunvel

Foods Corp., 673 P.2d 660, 670 (Cal. 1983).

Stripped to its essence, the lengthy complaint states

that Nike purposefully made a series of false representa-

tions as part of its “advertising, promotional campaigns,

public statements and marketing” efforts “in order to

maintain and/or increase its sales and profits.” First Am.

Compl. (“FAC”), 4975, 79, 82(b), 84, Pet. Lodging at 30-31,

34-35. Plaintiff contends that Nike falsely stated that it (1)

complies with applicable foreign wage and hour rules, (2)

guarantees worke:+ who are employed by foreign subcon-

tracting manufac’ arers a “living wage,” (3) pays workers

in subcontracted factories double the minimum wage, (4)

provides workers with free meals and health care, (5)

complies with worker health and safety and environ-

mental standards, and (6) protects workers from physical

abuse by the subcontractors who own the factories. Ibid.

Plaintiff further alleges that Nike made the false

representations of fact at issue “in response to the public

exposure of Nike’s labor practices in Southeast Asia” by

human rights groups that harshly criticized the working

conditions supposedly existing in the factories producing

Nike’s shoes and clothing. Jd. 18, Pet. Lodging at 7-8.

Nike’s alleged false representations were purportedly

designed to overcome what the complaint describes as a

“sweatshop stigma” (Id., Pet. Lodging at 7, 1. 18 et seq.) to

preserve both product and corporate image and thereby

maintain and promote the desirability of the product and

its sale the success of which had been adroitly nurtured

through a $1 billion annual multi-year marketing effort.

Id. 413, Pet. Lodging at 6.

Nike demurred to the complaint on First Amendment

and state constitutional grounds. Nike’s central contention

was that it was drawn into a debate about globalization,

economic policy, and labor standards and that its response

to public attacks was absolutely protected. Plaintiff,

however, argued that Nike made the allegedly false

statements to fend off the call for a boycott and to preserve

and, indeed, foster its reputation as a socially responsible

company with which the public could deal without fear of

promoting labor exploitation. Plaintiff, thus, argued that

Nike’s Penge 2 were designed to promote sales and

were a form of false commercial speech that i

First Amendment protection. siliataatadiae

B. Nike Has Manufactured An Image Of So-

cial Responsibility As A Means Of Pro

ing Product Sales om

1. Image Promotion Is An Essential As-

pect Of Product Promotion

a Modern marketing techniques may so inextricably

ink a product to an image that the promotion of the

product's image or the image of the product’s manufac-

turer is the promotion of the product:

(T]he idea that brands can have a personality or

image reflects the fact that people buy many

products and services not only for what such

products or services can do, but also for what

they mean to the person or his or her reference

group. In marketing terminology, products and

services offer the user both functio -

chological benefits. _o

GRAHAME DOWLING, CREATING CORPORATE REPUT.

’ ‘ATIONS:

IDENTITY, IMAGE, AND PERFORMANCE 17 (2001). Indeed,

(nJurturing, protecting, or exploiting a reputation ...

often determines whether a given company, product, or

brand will succeed or fail.” Jor MARCONI, REPUTATION

MARKETING: BUILDING AND SUSTAINING YOUR ORGANIZA.

TION’S GREATEST ASSET 2 (2002); see GRAHAME DOWLING

supra, at 10-11, 14, 16; S. Howarp, Corporate IMAGE

MANAGEMENT: A MARKETING DISCIPLINE For THE 21sT

CENTURY 217 (1998). Accordingly, “[tJhe best product

advertising also sells the company as a good source for the

product, and the best image advertising recognizes that

the company itself is a ‘product’ over and above its subor-

dinate products. ...” A. Allen, Corporate Advertising - Out

of the Ivory Tower, Into Marketing, SOURCEBOOK ON Cor-

PORATE IMAGE AND CORPORATE ADVOCACY ADVERTISING, 570

(Federal Trade Commission 1978).

Indeed, company image is important because it relates

directly “to how comfortable customers feel about buying

and using products.” N. GREGORY, MARKETING CORPORATE

IMAGE: THE CoMPANY AS YOUR NUMBER ONE PRODUCT 96

(1991). In the 21st century marketplace,

today’s consumer is looking for the company that

produces what they buy to provide more than a

simple product. Increasingly they are looking be-

hind the brand and the products to scrutinize the

behaviour and reputation of the company that

produces or sells them the item. In fact, in many

cases the brand is becoming secondary to the

company that makes it.

Curis GENASI, WINNING REPUTATION: How To BE YOUR

Own SPIN Doctor 38 (2002).

Companies now operate in a “business climate influ-

enced by major societal themes,” one of which involves

adherence to “global responsibility standards.” Jim Kar-

talia, Reputation At Risk?, 47 RISK MANAGEMENT No. 7

(July 1, 2000), 2000 WL 8276979. If consumers believe

that a company is not acting as a good corporate citizen,

consumers will look to other product providers:

The ‘new consumer’ is one who will, or will not,

buy a product or service based on a company’s

reputation. A recent Walker Group study found

that 48 percent of consumers refused to buy from

companies whose business practices they found

objectionable. Thus, as the pocketbook has be-

come an all-powerful weapon, shaping positive

perceptions is critical to maintaining a competi-

tive edge. Criteria for judging corporations are

based on broader measures than in the past....

(CJjorporations are also being judged on their

public responsibility behavior.

S. GARONE (ed.), Designing A Consumer Awareness Cam-

paign, SHAPING A SUPERIOR CORPORATE IMAGE: A CONFER-

ENCE REPORT 40 (Conf. Bd., Inc. 1996). Nike’s alleged

deceptive publicity campaign was designed to rehabilitate

and enhance its image.

2. Nike Has Cultivated A Corporate Im-

age Of Social Progressivity As A Mar-

keting Tool To Promote Product Sales

Nike has made a celebrated effort to depict itself as a

socially responsible company whose athletic shoes had a

transformational quality enabling people to break out of

the social roles consigned by age, race, and sex. These

advertisements —

conveyed the idea that Nike sneakers were worn

by people of all ages, genders, and disabilities,

and that the buyers of Nike shoes had the grit

and determination to take on the type of chal-

lenges included in the advertisements.... ‘the

roads are always open. Just Do It.’ Wearing Ni-

kes offered a route to spiritual if not political sal-

vation.

RANDY SHAW, RECLAIMING AMERICA: NIKE, CLEAN AIR, AND

THE NEW NATIONAL ACTIVISM 17 (1999); see MARCONI,

supra, at p. 58 (“Running shoes as a symbol of rebellion

and individuality? Nike sold them that way —- and at a

premium price.”). Nike’s marketing, thus, suggests that

buying Nike products is “part of expressing who you are,

what you stand for and what you believe in.” Steve Suo,

Nike Takes Own Advice In Changing Its Slogan, PORTLAND

OREGONIAN (January 4, 1998), 1998 WL 4171086.

If product success is predicated on emotional connec-

tions between the consumer and the company or product,

Nike’s carefully engineered image of social progressivity —

and the commercial success built on that image — could

turn like the image of Dorian Gray if the company’s

professed commitment to social responsibility is untrue:

the discovery that Nike might be associated with

slavery and child labor seemed particularly dis-

turbing because it so diverged from the image

that most people have of Nike through its adver-

tising.... Could the Nike we associate with the

swoosh and its meanings of empowerment and

the freedom to achieve, really be up to its ears in

the sordid injustices it is accused of?

ROBERT GOLDMAN & STEPHEN PAPSON, NIKE CULTURE: THE

SIGN OF THE SwoosH 10 (1998). Consumers appear to be

particularly sensitive to issues of labor and human rights

abuses:

in a Corporate Edge survey, 58% of the consum-

ers polled said that they would boycott a brand if

they knew that the company was employing chil-

dren to make their product. A 1995 survey

showed that 78% of their sample would patronize

retail stores committed to stopping the abuse of

garment workers. The same survey showed that

84% of the consumers sampled would pay $1

extra on a $20 purchase if the item was manufac-

tured in a worker-friendly environment. Corpora-

tions have also recognized the materiality of

human rights in the process of consumer decision

making. For example, PepsiCo suffered for its

operations in Myanmar when Harvard Univer-

sity reversed its plan to transfer $200,000 worth

of cola purchases to Pepsi as a result of student

concern over PepsiCo’s contribution to human

rights abuses in Myanmar. A spokesperson from

Reebok openly stated that ‘consumers today hold

companies accountable for the way products are

made, not just the quality of the product itself.’

Su-Ping Lu, Corporate Codes of Conduct and the FTC:

Advancing Human Rights Through Deceptive Advertising

Law, 38 COLUM. J. TRANSNAT’L L. 603, 624 (2000).

Nike incurred a consumer backlash when its foreign

labor practices were equated with sweatshop working

conditions: the company became the target of a call for a

consumer boycott, the company suffered losses in 1998 for

the first time in 13 years, and the entire imbroglio was

viewed as a “PR disaster.” See James Curtis, Public

Relations: PR Takes Center Stage, CAMPAIGN (March 10,

2000), 2000 WL 9853049. Nike responded, in part, with

the statements that are at issue in this appeal.

C. The First Amendment Does Not Protect A

Company’s False Statement Of Fact About

Its Own Product Or Business Operations

1. The Commercial Speech Doctrine

In Va. State Bd. of Pharmacy v. Va. Citizens Consumer

Council, Inc., 425 U.S. 748, 762 (1976), this Court aban-

doned its long-standing categorical rejection of commercial

speech from the ambit of First Amendment protection but

recognized that “Some forms of commercial speech regula-

tion are surely permissible.” Jd. at 770. The Court specifi-

cally acknowledged the right to prohibit false and

misleading commercial speech. Id. at 771-72. In the

Court’s view, the truthfulness of commercial speech could

be verified by its disseminator and its vital role in generat-

ing commercial profits made it a particularly hardy form

of speech less likely to be chilled by proper regulation than

other forms of speech. Jd. at pp. 771-72 and n.24. The

Court has never wavered in holding that “The States and

the Federal Government are free to prevent the dissemi-

nation of commercial speech that is false, deceptive, or

misleading. . . .” Zauderer v. Office of Disciplinary Counsel

471 U.S. 626, 638 (1985); see, e.g., Thompson v. Western

States Med. Cent., 122 S.Ct. 1497, 1504 (2002); Central

Hudson Gas & Electric Corp v. Public Service Com., 447

U.S. 557, 563 (1980); Bates v. State Bar of Arizona, 433

U.S. 350, 383 (1977).

The “precise bounds of the category of expression that

may be termed commercial speech” is subject to doubt.

Zauderer, 471 U.S. at 637; see, e.g., In re Primus, 436 US.

412, 438 n.32 (1978) (line between commercial and non-

commercial speech “will not always be easy to draw”).

Moreover, “the diverse motives, means, and messages of

advertising may make speech ‘commercial’ in widely

varying degrees.” Bigelow v. Virginia, 421 U.S. 809, 826

(1975). Indeed, the context in which particular speech is

expressed may determine whether it has a commercial

character. See Zauderer, 471 U.S. at 637 n.7 (discussion of

injured person’s legal rights may be protected speech in

one context but commercial speech in the context of a

lawyer’s solicitation of business).

The most common description of commercial speech is

speech that does “no more than propose a commercial

transaction.” Bolger v. Youngs Drug Products Corp., 463

U.S. 60, 66 (1983). This Court has also referred to com-

mercial speech as “expression solely related to the eco-

nomic interests of the speaker and its audience.” Central

Hudson, 447 U.S. at 561.

Commercial promoters, however, cannot gain core

First Amendment protection for commercial speech by

conflating a commercial message with a discussion of

public issues. This Court recognized that “many, if not

most, products may be tied to public concerns about the

environment, energy, economic policy, or individual health

and safety” and that the linkage of commercial speech to

matters of public debate does not elevate commercial

speech to core First Amendment protection. Central

Hudson, 447 U.S. at 562 n.5; accord Zauderer, 471 US.

637 n.7; see National Commission on Egg Nutrition v.

FTC, 570 F.2d 157 (7th Cir. 1977), cert. den., 439 U.S. 821

(1978) (trade association’s statements minimizing health

concerns about cholesterol and encouraging consumers to

buy eggs were commercial speech promoting egg consump-

tion merely disguised by the rhetoric of public health

debate).

In Bolger, a manufacturer of condoms distributed

pamphlets touting its products and discussing the general

use of condoms in halting the spread of venereal disease.

This Court noted that the pamphlets were advertisements,

the pamphlets referred to specific products, and the

distribution of the pamphlets was economically motivated.

Each of these factors, standing alone, would not necessar-

ily make the speech commercial in character, but the

combination of these factors established that the speech

was commercial notwithstanding the discussion of public

health issues. Bolger, 463 U.S. at 66-68. The Court also

noted, however, that these three factors need not all be

present to find that speech was commercial in character.

Id. at 67. The Court specifically expressed no opinion

about whether reference to any particular product or

service is a necessary element of commercial speech. Jd. at

66, n.13, 67, n.14. The teaching of Bolger is that a state-

ment directed to a commercial audience about a product to

induce purchase has the hallmark of commercial speech.

In Board of Trustees of the State Univ. of New York v.

Fox, 492 U.S. 469, 474-75 (1989), this Court went further

by indicating that the linkage between commercial speech

and public issues would have to be inextricable to give the

speech fully protected First Amendment status. The Court

concluded that a promotion of Tupperware was commercial

speech despite inclusion of a home economics discussion:

“No law of man or of nature makes it impossible to sell

housewares without teaching home economics, or to teach

home economics without selling housewares.” Jd. at 474.

The gist of the complaint in this action is that Nike

made a series of false statements about its foreign labor

practices as part of a publicity campaign to “entice con-

sumers who do not want to purchase products made in

sweatshop and/or unsafe and/or inhumane conditions”

(FAC, 927, Pet. Lodging at 11) to purchase its products. Id.

9175, 79, 82(b), and 84, Pet. Lodging at 31-32, 34-35. For

example, Nike allegedly stated before Christmas:

Consumers are savvy and want to know they

support companies with good products and prac-

tices.... During the shopping season, we en-

courage shoppers to remember that NIKE is the

industry’s leader in improving factory conditions.

Consider that Nike established the sporting

goods industry’s first code of conduct to ensure

our workers know and can exercise their rights.

Id. 427, Pet. Lodging at 11. This statement is obviously an

invitation to buy.

The alleged factual misrepresentations about Nike’s

own labor practices do not lose their character as commer-

cial speech by being linked to a public debate. Nike can

freely discuss economic globalization without reference to

whether Nike itself employs underage workers or pays

them twice the minimum wage. To paraphrase Fox, no law

of man or nature requires Nike to discuss globalization by

making specific objective factual claims about practices at

its own particular factories.

2. The California Supreme Court Prop-

erly Applied Commercial Speech Doc-

trine

The California Supreme Court properly found that

a seller may propose a commercial transaction with

statements about factors other than product characteris-

tics; for example, a seller may focus on who, how, or where

a product is made. Specific statutes have long prohibited

misrepresentations about the circumstances or context of a

product’s manufacture or sale. For example, state law

proscribes false or misleading statements regarding

whether products were made by blind workers’, American

Indians’, or union labor’. Neither the source, sponsorship

of a product, nor the affiliation or certification of a seller

may be misrepresented’. Special rules also govern untrue

or misleading statements regarding how a product was

produced, such as claims that a product was made or can

be used or disposed in an environmentally sound manner®

' See, e.g., Ariz. Rev. Stat. Ann. § 41-1976 (2003); Cal. Bus. & Prof.

Code § 17522 (West 2002); Fla. Stat. Ann. ch. 413.021 (2002); Md. Code

Ann., Com. Law § 14-2802-2803 (2002); N.Y. Gen. Bus. Ann. § 396-f

(2003); Ohio Rev. Code Ann. § 5109.17-5109.18 (2002); Va. Code Ann.

§ 51.5-102 (2003).

* E.g., Cal. Bus. & Prof. Code, § 17569 (2002).

* E.g., Cal. Lab. Code § 1011(a), 1012 (2002); see also Cal. Lab.

Code § 1014; Fla. Stat. ch. 506.06 (2002); Or. Rev. Stat. § 661.210

(2001); E. H. SCHOPLER, Rights in Union Label, Shop Card, or Other

Insignia Denoting Union Shop or Workmanship, 42 A.L.R.2d 709 (1955)

(protection of label/mark signifying union labor).

* See, e.g., Cal. Civ. Code §§ 1770(a)(2) and (3) (2002); D.C. Code

§ 28-3904(a)-(b) (2002); Fla. Stat. ch. 501.047(2) (2002); 815 Ill. Comp.

Stat. Ann. 510/2(a\(2)-(3), (5) (2003); Md. Code Ann., Bus. Reg. § 1-

404(a), (bX1)-(2), (b)(i)-(iv) (2002); Miss. Code Ann. § 75-24-5(2)(b)-(c),

(e) (2003); N.H. Rev. Stat. Ann. § 358-A:2(II)-(III), (V) (2002); Tex. Bus.

& Com. Code Ann. § 17.46(b)(2)-(3), (5) (2003); Va. Code Ann. § 59.1-

200(A)(2)-(3), (5) (2003); W.Va. Code Ann. § 46A-6-102(f)(2); 15 U.S.C.A.

tit. § 1125(1)(A) (2003).

* See, e.g., Cal. Bus. & Prof. Code § 17580.5 (West 1995); Fla. Stat.

ch. 403.7193 (2002); Mich. Comp. Laws § 445.903(3)1Xdd, ee) (2002);

N.H. Rev. Stat. Ann. § 149-N:1 et seg. (2002); N.Y. Envtl. Conserv. Law

§ 27-0717 (McKinney 1997); 16 C.F.R. § 260.1 et seg. (2003) (FTC

“Guides for the Use of Environmental Marketing Claims”).

or that food is “organic” or “dolphin safe.” Various laws

ensure that where a product was produced is honestly

stated.® Consumers may prefer to purchase products from

companies that protect the environment, support the

symphony or the local high school basketball team, avoid

cruelty to animals in product testing, underwrite tutoring

programs for inner-city youth, or finance cancer research.

A false statement of fact that products were produced by

disabled army veterans or were not produced by the forced

labor of Chinese Christian religious dissidents may be

more important to consumers than price or product quality

in determining whether to purchase a product. Indeed,

Nike’s alleged misleading press releases and public letters

about its labor practices were created directly to “advance

an economic transaction” with consumers concerned about

the labor conditions in overseas factories.

* See, e.g., 7 U.S.C. § 6501 et seg. (2003); Cal. Health & Safety Code

§ 110910 (West 1996 & Supp. 2002); Colo. Rev. Stat. § 35-11.5-101 et

seq. (2002); Fla. Stat. ch. 504.23 et seg. (2002); Ga. Code Ann. § 2-21-4

(2002); Mich. Comp. Laws § 286.911 (2003); Tex. Agric. Code Ana.

§ 18.005 (Vernon’s 2001); Va. Code Ann. § 3.1-385.2 (Michie 2002);

Wash. Rev. Code § 15.86.030 (2003).

” 50 C.FR. § 216.91.

* See, e.g., Cal. Bus. & Prof. Code § 17533.7 (2002) (“Made in

U.S.A.”) and Civ. Code, § 1770(a)(4) (geographic origin); Colo. Rev. Stat.

Ann. § 6-1-105(d) (2002); D.C. Code § 28-3904(t) (2002); Fla. Stat. ~s

501.97 (2002) (geographic origin); Fla. Stat. ch. 601.99 (2002) (“Flori

citrus”); Ga. Code Ann. § 10-1-372(a)(4) (2003); Ga. Code Ann. § 10-1-

393(b\4A) (2003); Haw. Rev. Stat. Ann. § 481A-3(a\(4) (2002); Haw.

Rev. Stat. § 486-120.6 (2002) (“All Hawaiian” coffee); Ill. Comp. a

Ann. § 510/2(aX4) (2003); Md. Code Ann., Bus. Reg. § 1-404(c)(ii) (2002);

Minn. Stat. Ann. § 325D.44(4) (2003); N.H. Rev. Stat. Ann. § 358-

A:2(IV) (2002); Tex. Bus. & Com. Code Ann. § 17.46(b)(4) (2003); Utah

Code § 13-1la-3(1)(d) (2002); Va. Code Ann. § 59.1-200(A)(4) (2003);

W.Va Code Ann. § 46A-6-102(f)(4) (2002); Vt. Stat. tit. 6, § 490 et seg.

(2002) (“Vermont maple syrup”); 15 U.S.C.A. tit. § 1125(1\B) (2003).

No prior case has ever limited the commercial speech

doctrine to speech involving only product characteristics,

price, or availability. For example, statements about the

education, experience, and qualifications of persons

providing or endorsing services have been treated as

commercial speech even when unaccompanied by a direct

offer to provide services. See Ibanez v. Florida Dept. of

Bus. and Prof. Reg., Bd. of Accountancy, 512 U.S. 136

(1994) (use of title “CPA”); Peel v. Attorney Disciplinary

Comm'n of Ill., 496 U.S. 91 (1990) (indication of board

certification). Thus, this Court upheld a generic ban on the

use of trade names by optometrists, which did not directly

involve any misrepresentation concerning optometric

services, because trade names could obscure the identity

and qualifications of optometrists. Friedman v. Rogers,

440 U.S. 1 (1970); see Briggs & Stratton Corp. v. Baldrige,

728 F.2d 915 (7th Cir. 1984) (speech not involving product

characteristics but aimed at maintaining advantageous

foreign commercial relationships could be regulated as

commercial speech).

The proposal of a commercial transaction, thus, may

not only involve the offer of Product A at Price B but the

offer of a product produced under circumstances, such as

the conditions of manufacture, that transcend the particu-

lar physical characteristics of the product. Indeed, the

Nike web site contains specific factual assertions about its

contributions to the environment, the improvement of

conditions for foreign workers, and the diversity of its

domestic employees.’*

* The “corporate responsibility” category of Nike’s web site

affirmatively presents positions on environmental, worker diversity,

and foreign manufacturing practice issues (<http//nikebiz.com> Mar.

18, 2003) such as “Nike’s commitment is to provide workers making our

(Continued on following page)

The commercial harm involved in disseminating false

statements about these matters to induce sales is that

customers are led to patronize and support a business

from which they might not otherwise buy and are diverted

from dealing with honest enterprises whose conduct they

support. It may be true that one can run just as fast with a

Nike shoe manufactured by child labor or by physically

abused Asian women as with a shoe ae ie

locally lawful labor conditions, but deceiving consume

cee allegedly false statements of fact regarding the

circumstances of manufacture deprives consumers of their

ability to make choices in the marketplace.

Indeed, the socially conscious manufacture and sale of

products may not only furnish the commercial lure of the

product but may be a factor justifying a higher price

because of the implicit increased cost of manufacturing

and selling in a socially responsible way. The advertise-

ment of false facts to inflate a corporate image may also

mislead employees and investors who would not otherwise

products with the best workplaces possible.” <http//www.nike.com/nike

biz/nikebiz.jhtml?page=25&cat=compliance>. Nike discusses | specific

programs it sponsors to ameliorate working and living “yo in

Third World countries, such as $1.3 million in grants for ; gher

education programs <http/www.nike.com/nikebiz/nikebiz.jhtml? page=

25&cat=communityprograms&subcat=education> and $1 million in

loans to 5,300 Southeast Asian families, including 3,200 rural Vietnam-

ese women and farm workers. <ttyterere: nian comiaiaaiatees,

jhtml?page=254cat=communityprograms&subcat=smbizioans>

also presents specific information about employee salaries § ao

fact that Indonesian entry level contract workers make at least 1 ;

more in cash and allowances than local governments —

<http:/swoosh.custhelp.com/cgi-bin/swoosh.cfg/php/enduser/std_adp.p p

?p_sid=i 4P6HDg&p_lva=&p_faqid=247 &p_created=1022195687&p_sp=

FozcmN PTIzJnBfc2VhcmNo

cF9zcemNoPTEmcF9ncmlkc29ydD0mcF 9yb3dfY 250 —

X3RleHQ9JnBfcHJvZF9sdmwxPTQwJnBicHJvZF9sdmwyPTUyJ

FnZTOx&p_li=>.

be attracted to the company. See Pittsburgh Press Co. v.

Human Rel. Com., 413 U.S. 376 (1973) (advertisements for

employment are commercial speech).

The misrepresentations alleged in this case are no less

commercial in character because they were disseminated

in promotional campaigns, public statements, and market-

ing, in addition to conventional advertisements. See, e.g.,

FAC, 775, Pet. Lodging at 31. None of the commercial

speech cases requires that speech be contained in a con-

ventional advertising format for that speech to be re-

viewed under the commercial speech doctrine. Commercial

speech may be disseminated through an informational

pamphlet (see Bolger, 463 U.S. at 66) or an in-person sales

presentation to small groups (see Fox, 492 U.S. at 472),

while political messages may appear in a paid advertise-

ment. See Bolger, 463 U.S. at 66 citing New York Times Co.

v. Sullivan, 376 U.S. 254, 265-66 (1964). The complaint

pleads the existence of a publicity campaign, and in the

world of modern advertising, an advertising message need

not come packaged as an advertisement.

Marketing consultants advise companies to promote

corporate image through press releases, press conferences,

media alerts, press kits, bylined articles, meetings with

newspaper editorial boards, one-on-one interviews with

reporters, seminars, newsletters, and “Op-Ed.” articles. S.

SAUERHAFT & C. ATKINS, IMAGE WARS: PROTECTING YOUR

COMPANY WHEN THERE’S No PLACE To HIDE 62, 76-95

(1989). Multi-faceted media “damage control” is advised to

rebut accusations tarnishing corporate image: “Advertise

your position through letters, paid ads, press releases,

newsletters, letters to the editors, and calls to talk shows.”

GENASI, supra, at 141. The complaint in this case alleges

this type of concerted and orchestrated public relations

effort.

Il. PRIVATE FALSE ADVERTISING ACTIONS

FILED ON BEHALF OF THE GENERAL PUBLIC

DO NOT THREATEN COMMERCIAL SPEECH

A. A Proper Respect For States And Their

Judiciaries Requires That Any Challenge

To Private False Advertising Suits As

Chilling First Amendment Rights Should

Have Been Raised First In California

Courts

Nike, supported by the United States, claims for the

first time that California violates the First Amendment by

allowing private citizens to bring civil actions for equitable

relief on behalf of the general public to redress false

advertising violations. The gist of the argument 1s that a

limitless number of “private attorney general” actions

could be filed to challenge alleged false advertising be-

cause the state statute does not require that the plaintiff

or the public be directly, measurably harmed by the

violation or that the plaintiff demonstrate that the defen-

dant acted with actual malice; the mere possibility that a

case could be filed supposedly would deter even a commer-

cial speaker from disseminating commercial messages.

This argument was never pressed or passed upon by any

California court: the sole issue presented to the California

Supreme Court and Court of Appeal was whether Nike's

alleged false factual statements constituted commercial

speech. Kasky, 45 P.3d at 247-49.

This Court has long refused to consider any constitu-

tional challenge “unless it was either addressed by or

properly presented to the state court that rendered the

decision we have been asked to review.” Campbell v.

Louisiana, 523 U.S. 392, 403 (1998); see, e.g., Sprietsma v.

Mercury Marine, 123 S.Ct. 518, 522 n.4 (2002); McGoldrick

v. Compagnie Generale Transatlantique, 309 U.S. 430, 434-

35 (1940). Indeed, “this is a court of final review and not

first view.” Adarand Constructors, Inc. v. Mineta, 534 U.S.

103, 110-11 (2001). Sound reasons support this rule:

Questions not raised below are those on which

the record is very likely to be inadequate, since it

certainly was not compiled with those questions

in mind. And in a federal system it is important

that state courts be given the first opportunity to

consider the applicability of state statutes in

light of constitutional challenge, since the stat-

utes may be construed in a way which saves

their constitutionality. Or the issue may be

blocked by an adequate state ground.

Cardinale v. Louisiana, 394 U.S. 437, 438-39 (1969).

Nike’s first-time facial constitutional challenge in this

Court is particularly inappropriate because the California

Attorney General was not presented with a proper oppor-

tunity to defend the law in the courts below. The states’

attorneys general have obvious interest in defending the

constitutionality of state laws. Respect for state sover-

eignty is reflected in federal policy ensuring that the

states, through their attorneys general, have a full oppor-

tunity to appear in cases in which the constitutional

validity of state law is assailed. See 28 U.S.C. § 2403(b).

An eleventh-hour facial challenge in this Court, however,

deprives the states’ attorneys general of their ability, for

example, to intervene in proceedings, establish a factual

record supporting state law, or offer a construction of state

law that would obviate constitutional challenge. Moreover,

Nike apparently even ignored this Court’s mandate that

“the initial document filed in this Court shall recite that

28 U.S.C. § 2403(b) may apply and shall be served on the

Attorney General of that State” when the constitutionality

of a state law is “drawn into question” and the state has

not appeared as a party.” Sup. Ct. R. 29.4(c).

If Nike’s facial constitutional challenge had —

presented to the California courts, the state courts _

have considered whether speech has been enero /

chilled during the 70 years” in which injunctive wn 7

30 years” in which restitution have been = ~ hn

private parties in false advertising cases. Sure y, Ni ;

would have developed a record of the calamitous conse

quences of the private right of action — if there oe wy

rather than present merely doomsday speculation for the

first time to this Court.

Moreover, if Nike had presented a meritorious —

ment, the California Supreme Court or Court of Appea

could have construed state law to avoid putative constitu-

tional conflict. See Kraus v. Trinity Management Services,

Inc., 999 P.2d 718, 732 (Cal. 2000) (construing meee

ary provisions of unfair trade practice law to preclude -

recovery, in part, to avoid potential due process ao '

The state appellate courts also could have considered :

challenge to private party standing as part of Nike’s state

i rved with the

* The California Attorney General was not se

Petitioner’s Brief at the same time as the parties (the —_ —_ ben

received on March 10, 2003) and is unaware of any docume ; - yr

this Court that indicates the potential applicability bd - ~

§ 2403(b). Under state law, every appeal affecting the applica her

state’s false advertising law must be served on the Attorney

See Cal. Bus. & Prof. Code §§ 17209, 17536.5 (West 1997).

" Cal. Stats. 1933, ch. 953, § 1, at 2482 (amending former = oy

Code § 3369, the forerunner to current Cal. Bus. & Prof. Code § 1 ,

regarding unfair trade practices including false advertising). -

® Cal. Stats. 1972, ch. 244, § 1, at 494, amending false advertising

law.

constitutional arguments. The free speech clause of the

California Constitution has long been interpreted to be

“broader and more protective than the free speech clause

of the First Amendment.” See, e.g., Los Angeles Alliance

For Survival v. City of Los Angeles, 993 P.2d 334, 342 (Cal.

2000). Consequently, if Nike had a meritorious argument,

it might have been resolved on adequate state grounds.

B. Statutes Providing Remedial Actions To

Prevent The Dissemination Of Deceptive

Advertising Do Not Chill First Amend-

ment Rights

1. False Advertising Law Is Not Subject

To An Over Breadth Challenge

In its second question presented to this Court, Nike

assumes that the California Supreme Court properly

characterized Nike’s speech as commercial speech and

argues that, if so, “speakers” in general would be unduly

chilled from engaging in commercial speech in derogation

of the First Amendment. Pet. Br. i, 38 (asserting decision

below imperils commercial entities throughout the world).

Assuming as Nike does that this is a commercial speech

matter, an over breadth challenge must founder: “it is

irrelevant whether the ordinance has an overbroad scope

encompassing protected commercial speech of other

persons, because the over breadth doctrine does not apply

to commercial speech.” Hoffman Estates v. Flipside,

Hoffman Estates, 455 U.S. 489, 496-97 (1982) citing

Central Hudson, 447 U.S. at 565, n.8.

2. The Challenged Statute Is A Reasonable

Remedy For Addressing Deceptive Ad-

vertising By Commercial Enterprises

California, along with 43 other states and the District

of Columbia, has adopted a version of the 1911 Printer’s

Ink model false advertising statute that prohibits any

person from disseminating untrue or misleading state-

ments which the person knows, or by the exercise of

reasonable care should know, to be untrue or misleading,

with the intent to dispose of property or services. Cal. Bus.

& Prof. Code § 17500 (West 2003); Pet. App. at 87a-88a; see

~ People v. Superior Court, 157 Cal.Rptr. 628, 634, n.7 (Cal.

Ct. App. 1979). In addition, “unfair competition” is defined

to include violations of Bus. & Prof. Code § 17500 and

unfair, deceptive, untrue, or misleading advertising. Cal.

Bus. & Prof. Code § 17200 (West 2003); Pet. App. at 83a.

Although the advertising prong of the unfair competition

definition appears broader than the false advertising

prohibition of § 17500, both statutes have been interpreted

to provide similar protection against false advertising. See

Committee on Children’s Television, 673 P.2d at 668 (“we

discern no difference in the scope of these enactments ...

or the meaning of their provisions.”). Both statutes have

been construed to apply only to commercial speech and not

to speech like political advertising that has been tradi-

tionally subject to core First Amendment protection. See

O’Connor v. Superior Court, 223 Cal.Rptr. 357 (Cal. Ct.

App. 1986).

Any person may bring an action on behalf of the

general public to remedy false advertising violations. Cal.

Bus. & Prof. Code §§ 17203, 17204, 17535 (West 1997);

Pet. App. 83a-84a, 88a. A plaintiff’s ability to bring an

action for the general public is not conditioned on having

suffered direct injury. The court, however, can dismiss the

action if the “defendant can demonstrate a potential for

harm or show that the action is not one brought by a

competent plaintiff for the benefit of injured parties. . . .”

Kraus, 999 P.2d at 733. The creation of a role for a private

attorney general “is not uncommon in modern legislative

programs” to augment the limited resources of government

agencies in implementing important legislative policy. See

Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 211

(1972). Indeed, it has been long recognized as a matter of

state practice that “A stated number of citizens or a singie

individual may be clothed by the Legislature with author-

ity to invoke the aid of courts in the suppression of viola-

tions of law.” Barrows v. Farnum’s Stage Lines, Inc., 150

N.E. 206, 208 (Mass. 1926). Moreover, “experience dem-

onstrates consumers are generally among the best vindica-

tors of the public interest,” and courts have allowed their

participation as private attorneys general. Office of Com-

mye of United Church of Christ v. FCC, 359 F.2d

. -06 (D.C. Cir. 196 ircui

catia 6) (Burger, Circuit Judge [later

Although standing under the challenged advertising

statute is broad, potential relief is narrow. The court “may”

issue an injunction and “may make such orders... as may

be necessary to restore to any person in interest any

money or property, real or personal, which may have been

acquired by means of such” violation. Cal. Bus. & Prof.

Code §§ 17203, 17535. Neither injunctive nor restitution-

ary relief is required, and the trial court must permit the

18 .

Qui tam actions, in which a private party is authori

, orized to

a penalty against the violator of a law although the party is te

unharmed by the violation, “have been in existence for hundreds of

years in England, and in this country since the foundation of our

Government.” Marvin v. Trout, 199 U.S. 212, 225 (1905).

defendant to offer equitable considerations that must be

considered in mitigating or declining discretionary equita-

ble relief. See Cortez v. Purolator Air Filtration Products

Co., 999 P.2d 706, 717 (Cal. 2000).

A private plaintiff may not recover any damages for

himself or anyone else. See, e.g., Bank of the West uv.

Superior Court, 833 P.2d 545, 557 (Cal. 1992); Chern v.

Bank of America, 544 P.2d 1310, 1315 (Cal. 1976). Punitive

damages are foreclosed. See People v. Superior Court, 507

P.2d 1400, 1402-03 (Cal. 1973). Civil penalties can only be

recovered by designated public prosecutors. See Cal. Bus.

& Prof. Code §§ 17206 (West 2003), 17536 (West 1997);

Pet. App. 84a-85a. Other than restitution for the direct

victims from whom money or property was taken, a

private plaintiff cannot obtain the disgorgement of the

profits or benefits the defendant obtained from false

advertising. See Korea Supply Co. v. Lockheed Martin

Corp., 63 P.3d 937, 2003 Lexis 1301, *5 (Cal. 2003); Kraus,

999 P-2d at 728, 732. Significantly, no statute provides for

the award of attorney’s fees in false advertising cases;

thus, even a prevailing private plaintiff has no right to

recover attorney's fees. See Shadoan v. World Sav. & Loan

Assn., 268 Cal.Rptr. 207, 212 n.7 (Cal. Ct. App. 1990). A

court, however, may make a discretionary award of attor-

ney’s fees but only if the action resulted in the enforce-

ment of an important right affecting the public interest, a

significant benefit was conferred on the general public or a

large class of persons, the necessity and financial burden

of private enforcement make an award appropriate, and

such fees should not in the interest of justice be paid out of

any recovery. Cal. Code Civ. Proc. § 1021.5 (West 2003).

Moreover, California has established a procedure at

the early stage of litigation to weed out baseless cases

burdening free speech. A defendant may bring, within 60

days of service, a special motion to strike a complaint

arising from the defendant’s constitutionally-protected

speech. Cal. Code Civ. Proc. § 425.16(b)(1), (f) (West 2003).

Protected speech activity includes commercial speech like

advertising, marketing, and public relations. DuPont

Merck Pharmaceutical Co. v. Superior Court, 92

Cal.Rptr.2d 755, 758-59 (Cal. Ct. App. 2000). The defen-

dant need not establish that the action had the purpose or

effect of chilling speech. Equilon Enterprises, LLC uv.

Consumer Cause, Inc., 52 P.3d 685, 687 (Cal. 2002); City of

Cotati v. Cashman, 52 P.3d 695 (Cal. 2002). All discovery

proceedings are stayed until the motion is determined.

Cal. Code Civ. Proc. § 425.16(g). The motion is considered

on the basis of the pleadings and affidavits. Id.

§ 425.16(b)(2).

If the defendant establishes that the case arises from

protected speech activity, the plaintiff must then establish

the probability of prevailing. Jd. § 425.16(b)(1); Equilon, 52

P.3d at 691, 694. The plaintiff must show that the “com-

plaint both is legally sufficient and supported by a suffi-

cient prima facie showing of facts to sustain a favorable

judgment if the evidence submitted by the plaintiff is

credited.” Navellier v. Sletten, 52 P.3d 703, 712 (Cal. 2002).

A prevailing defendant is entitled to recover attorney’s

fees and costs, but a prevailing plaintiff is only entitled to

recover those fees and costs if the special motion to strike

is frivolous or brought for delay. Cal. Code Civ. Proc.

§ 425.16(c). Either party may pursue an interlocutory

appeal of the trial court’s decision, the effect of which is to

stay proceedings until the appeal is determined. Jd.

§§ 425.16G), 916(a). This statutory scheme thus “provides

an efficient means of dispatching, early on in the lawsuit,

and discouraging, insofar as fees may be shifted, a plain-

tiff’s meritless claims.” Equilon, 52 P3d at 691. The

California legal regime, thus, does not foster runaway

litigation creating any chilling effect on speech and,

indeed, has significant limiting features.

3. Actions For Discretionary Equitable

Relief Do Not Impermissibly Chill

First Amendment Rights When They

Are Directed To False Statements

About The Defendant’s Own Commer-

cial Operations

Nike and the United States insist that this Court's

defamation jurisprudence requires that privately-filed

false advertising cases cannot constitutionally proceed

without proof of both damage and actual malice or some

other high level of scienter. They reason that without some

tolerance for false advertising that does not meet these

exacting standards, commercial speech may be chilled.

This argument, however, is fundamentally inconsistent

with the commercial speech doctrine.

This Court has long recognized that:

there is no constitutional value in false state-

ments of fact. Neither the intentional lie nor the

careless error materially advances society's in-

terest in ‘uninhibited, robust, and wide-open’ de-

bate on public issues. They belong to that

category of utterances which ‘are no essential

part of any exposition of ideas, and are of such

slight social value as a step to truth that any

benefit that may be derived from them is clearly

outweighed by the social interest in order and

morality.’

Gertz v. Robert Welch, Inc., 418 U.S. 323, 340 (1974);

accord Garrison v. Louisiana, 379 U.S. 64, 75 (1964) (“the

use of the known lie as a tool is at once at odds with the

premises of democratic government and with the orderly

manner in which economic, social, or political change is to

be effected.”). Accordingly, the false statement of fact “has

never been protected for its own sake.” Va. State Bd. of

Pharmacy, 425 U.S. at 771.

Nonetheless, since “erroneous statement is inevitable

in free debate,” some false statements about others must

be tolerated to promote free discussion; consequently, the

courts have tempered the libel laws to permit a measure of

falsity to ensure that “the freedoms of expression are to

have the ‘breathing space’ that they ‘need . . . to survive.’”

New York Times, 376 U.S. at 271-72. The level of tolerance

varies depending on whether the defamed person is a

public or private figure and whether the context is public

or private. See New York Times, 376 U.S. at 279-80; Curtis

Publishing Co. v. Butts, 388 U.S. 130 (1967); Gertz, 418

U.S. at 347, 349-50; Dun & Bradstreet, Inc. v. Greenmoss

Builders, Inc., 472 U.S. 749, 761 (1985).

If Nike had defamed the labor practices of a competi-

tor like Reebok or Adidas, the maligned competitor could

bring an action for defamation under the rules described

above. See 2 HARPER, JAMES & GRAY, THE LAW OF TORTS

(2d ed. 1986), § 5.3, at 45 (a corporation may “maintain an

action for defamation for language that tends to discredit

it and to injure its business reputation.”); accord Restate-

ment (Second) of Torts § 561(a). Likewise, Nike's critics

may be liable if they defamed Nike under the rules appli-

cable to defamation actions.

The self-censorship issue at work in the libel cases has

no bearing in the factual context pleaded in the case at

bar. Erroneous statement is not inevitable when a com-

pany speaks of itself in promoting its products and corpo-

rate image or touting the conditions under which its

products are manufactured. Noting the “commonsense”

difference between commercial and noncommercial speech

and distinguishing New York Times, this Court observed

that:

The truth of commercial speech, for example,

may be more easily verifiable by its disseminator

than, let us say, news reporting or political com-

mentary, in that ordinarily the advertiser seeks

to disseminate information about a specific prod-

uct or service that he himself provides and pre-

sumably knows more about than anyone else.

Also, commercial speech may be more durable

than other kinds. Since advertising is the sine

qua non of commercial profits, there is little like-

lihood of its being chilled by proper regulation

and forgone entirely.

Va. State Bd. of Pharmacy, 425 U.S. at 772 n.24.

Emphasizing this pc nt in his concurrence, Justice

Stewart recognized that although some “breathing space

for free expression necessitated limitations on recovery for

libel, |

The principles recognized in the libel deci-

sions suggest that government may take broader

action to protect the public from injury produced

by false or deceptive price or product advertising

than harm caused by defamation. In contrast to

the press, which must often attempt to assemble

the true facts from sketchy and sometimes con-

flicting sources under the pressure of publication

deadlines, the commercial advertiser generally

knows the product or service he seeks to sell and

is in a position to verify the accuracy of his

factual representations before he disseminates

them. The advertiser’s access to the truth about

his product and its price substantially eliminates

any danger that governmental regulation of false

or misleading price or product advertising will

chill accurate and nondeceptive commercial ex-

pression. There is, therefore, little need to sanc-

tion ‘some falsehood in order to protect speech

that matters.’ [Gertz, 418 U.S.] at 341.

Va. State Bd. of Pharmacy, 425 U.S. at 777-78 (Stewart, J.,

concurring).

The California Supreme Court’s opinion follows this

teaching. As the Court observed,

In speaking to consumers about working

conditions in the factories where its products are

made, Nike engaged in speech that is particu-

larly hardy or durable. Because Nike’s purpose in

making these statements, at least as alleged in

the first amended complaint, was to maintain its

sales and profits, regulation aimed at preventing

false and actually or inherently misleading

speech is unlikely to deter Nike from speaking

truthfully or at all about the conditions in its fac-

tories.

Kasky, 45 P.3d at 258. Recognizing the importance to

consumers of information about the circumstances in

which products are manufactured, the Kasky court con-

cluded that to the extent the false advertising laws caused

Nike to increase its effort to verify the truth of its state-

ments, state law served the purpose of commercial speech

protection by “‘insuring that the stream of commercial

information flow[s] cleanly as well as freely.’” Ibid., citing

Va. State Bd. of Pharmacy, 425 U.S. at 7.2.

CONCLUSION

For the foregoing reasons, the California Supreme

Court correctly concluded that the First Amendment does

not protect a company’s dissemination of allegedly false

statements of objective, verifiable facts about the com-

pany’ products and business operations as part of a

publicity campaign intended to encourage consumption of

its products. False commercial speech “may be prohibited

entirely.” See In re RMJ, 455 U.S. 191, 203 (1982) and

cases cited in Section I(C)(1), above. To facilitate the

elimination of false commercial speech, the state may

constitutionally permit private parties to seek limited

equitable redress. Accordingly, the judgment should be

affirmed.

DATED: April 4, 2003

Respectfully submitted,

BILL LOCKYER

Attorney General of California

MANUEL MEDEIROS

State Solicitor General

RICHARD M. FRANK

Chief Assistant Attorney General

HERSCHEL T. ELKINS

Senior Assistant Attorney General

RONALD A. REITER

Supervising Deputy Attorney

General

(Counsel of Record)

Counsel for Amici Curiae

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.