Case analysis assignment

Case 1 You will use this case for both “Case 1 Part 1” and “Case 1 Part 2” assignments.

With annual sales of over $10.5 billion and annual profits of over $475 million, Nike is one of the giants in the sports apparel business, and its trademark “Swoosh” logo is recognized around the world. However, for a company its size, Nike directly employees surprisingly few workers—only about 22,000. That is because overseas contractors manufacture all Nike’s products. These independent contractors employ approximately 600,000 workers at 910 factories, mostly in China, Indonesia, Vietnam, and Thailand.

Like many other firms, Nike outsources its manufacturing to take advantage of cheap overseas

labor. But the price of doing so began getting higher for Nike in the late 1990s, when antisweatshop activists started campaigning against the company, charging that the third-world workers making its products were exploited and abused. Activists on many college campuses, for instance, encouraged their peers to boycott Nike shoes and clothing and tried to pressure their universities’ athletic departments not to sign deals with Nike for team sports apparel.

Instead of ducking the issue, as other companies might have, Nike responded vigorously to the criticisms. At the University of North Carolina, for example, Nike ran full-page ads in the student newspaper, asserting that it was a good corporate citizen and upheld humane labor standards. It

sent representatives to meet with student activists, and company CEO Philip Knight took the unusual step of showing up at an undergraduate seminar on corporate globalization to defend

his company. Nike issued press releases and sent letters to many college presidents and athletic departments, asserting, among other things, that Nike paid “on average, double the minimum wage as defined in countries where its products are produced” and that its workers “are protected from physical and sexual abuse.”

Enter Marc Kasky, a fifty-nine-year-old San Francisco activist. He thought Nike’s campaign was

misleading the public about working conditions inside its factories, so he sued the company for false advertising under California’s consumer protection law. In Kasky’s view, the case was simply a matter of protecting consumers from corporate deceit. In response, Nike argued that the statements in question were protected by the First Amendment because they were made in news releases, letters to the editor, and op-ed essays and because they related to the company’s labor practices—which are a matter of public concern—and not the products it sold.

Two lower courts agreed with Nike, but then the California Supreme Court overturned their verdict, ruling in a 4 – 3 decision that the company’s campaign was essentially commercial speech (which generally receives less First Amendment protection than political or personal

speech) even though Nike was not specifically talking about shoes. In the court’s view, Nike’s speech was directed at customers and dealt with its business operations; the form in which the information was released was irrelevant. The judges, however, did not determine whether Nike

really did abuse workers or mislead consumers; it left those factual questions for a trial court to

decide.

Nike then appealed the case to the U.S. Supreme Court. California Attorney General Bill Lockyer filed a brief in support of Kasky, which seventeen other states joined. The brief contended that the case was not about free speech but rather about “Nike’s ability to exploit false facts to promote commercial ends.” Harvard law professor Laurence Tribe, however, defended the company arguing that treating Nike’s letters and press releases as equivalent to advertising

would undercut the ability of companies to speak out on political issues. He urged that the California decision would have a “chilling effect on freedom of speech.” To this, however, the chief author of the California brief, deputy attorney general Roland Reiter, responded: “I believe the concerns expressed are really overblown. We have a company talking about itself. It is

difficult to see why holding them to the truth would cause any kind of calamity.” University of Southern California law professor Erwin Chemerinsky agreed. He argued that it did not matter whether Nike issued the information in the form of a press release: “If a company makes false statements about its product or practices with the intent of increasing profits, that is commercial speech.”

After having heard the case, however, the U.S. Supreme Court declined to decide the substantive legal issues at stake. Instead, it dismissed the case on a technicality and sent it back to California for trial. Assuming that you are CEO Philip Knight, what would you do now? Analyze and format your analysis according to the Opening Case instructions.