The Supreme Court (search) on Thursday dismissed on technical grounds a Nike Inc. (NKE) appeal on whether it can be sued for false advertising over a publicity campaign to defend itself against accusations that Asian sweatshops made its footwear.
The high court, on the last day of its term, said the free-speech appeal was dismissed without reaching the merits of the dispute. The ruling means the lawsuit against Nike, the world's largest maker of athletic shoes, can go forward.
In the mid-1990s, Nike was criticized by opponents of globalization for exploiting workers, especially women and children, with sweatshop conditions at Third World factories used to make its footwear.
The company responded with the publicity campaign, saying in press releases, letters to the editor published in newspapers, other correspondence and postings on its Web site that it had adopted sufficient safeguards.
One critic, Marc Kasky (search), a San Francisco consumer activist, sued Nike in 1998 under a California consumer protection law aimed at eliminating unfair competition and false advertising.
The lawsuit claimed Nike misled the public about working conditions for its Vietnamese, Chinese and Indonesian laborers, and that its statements amounted to false advertising.
The lawsuit claimed Nike knew workers were subjected to physical punishment and sexual abuse, endured dangerous working conditions and were often unable to earn a "living wage," despite work days that could be 14 hours long.
The lawsuit alleged the Beaverton, Ore.-based company falsely portrayed itself as a "model of corporate responsibility" in an effort to boost sales.
Nike denied the allegations and argued the case should be dismissed because all the statements cited in the lawsuit were protected as free speech. It said its statements were part of an international media debate on issues of public interest.
The California Supreme Court ruled Nike's corporate statements could be regulated as commercial speech and allowed the lawsuit to go to trial.
With the U.S. Supreme Court dismissing Nike's appeal, the state Supreme Court ruling stands and the case can go forward to trial. If Nike loses at trial, it can raise the free-speech argument again.