Marc Kasky, a consumer activist, filed a lawsuit against Nike in 1998 claiming they made deceptive and misleading statements about fair working conditions in their overseas factories. The case went to the California Supreme Court, which ruled Nike's statements were commercial speech and could be subject to false advertising laws. Kasky and Nike eventually settled out of court for $1.5 million, with Nike agreeing to improve worker programs and monitoring.

1. Case Report: Kasky V. Nike
Alexis Niles & Justin Helke
Business Law & Ethics
October 29th, 2011

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There are a few large American companies that have been accused of producing
their products in sweatshops. In the 1990’s many students and laborers joined a
movement to protest the sweatshop conditions that these companies furnish. There
were many demonstrations on the streets outside of the World Trade Organization
(WTO) meetings. These demonstrators boycotted these accused companies, and
protested publicly. This report deals with one of the most publicly known “sweatshop”
produced companies, Nike Inc. and the fed up consumer activist, Marc Kasky.
Nike Inc. is a large producer and marketer of athletic wear, whether its shoes,
apparel or gear, Nike makes it. They are most famous for their slogan of, “Just do it.”
They promote this image heavily and to do so, in 1997 it cost them more than
$970,000,000 in advertisements and branding. Nike, like many large companies, has
contracted labor in counties with lower labor costs. This allows for a greater mark up
and profit margin. Nike only contracts the labor; the facilities that produce the goods are
owned by South Korean, Taiwanese, and Chinese companies who contract the work
out to those willing to produce their goods at lower wage costs.
Nike became aware of the public frenzy in the 1990’s, and tried to enhance their
public image. In doing so Nike sent out press releases and letters to large Newspaper
editors to publish. In 1995, a Korean company opened a large facility in Vietnam giving
it a large share of Nike’s production needs. This meant that between 300,000 to
500,000 Asian workers were producing Nike goods. A complaint then alleged that most
of these workers were females who were under the age of 24.
Nike pursued the appearance of good working conditions. They required
contractors to sign documents ensuring they understood and would comply with local

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laws of minimum wage, overtime, child labor laws, insurance benefits, holiday, vacation,
and proper working conditions. Nike also required documents showing their fulfillment of
these requirements. To confirm that the outsourced facilities were complying,
accounting firms would randomly audit the labor and environmental conditions.
In 1997, Nike became engaged with a consulting firm Co-chaired by Andrew
Young. Andrew Young was the former ambassador to the United Nations (UN). This
consulting firm went to evaluate the labor conditions. The firm visited twelve factories
and Mr. Young reported in favor of these working conditions and was unable to find
evidence of neglect to workers. However, reports were leaked that things were not as
they seemed. There were reports of pollution to the air consequently causing respiratory
problems in 77 percent of the workers in the factories.
While many people took what Nike’s accounting firm, and Andrew Young had to
say for face value, a few activists did not buy their statements. Marc Kasky, a consumer
activist,brought a lawsuit against Nike in 1998 in California courts.He claimed Nikewas
deceptive in reports of factory conditions, engaged in unlawful and unfair business
practices, and false advertisement under California’s Unfair Competition Law and False
Advertising Law. Kasky claims a total of six falsifications were made concerning their
labor conditions. Nike filed a defense to this complaint saying Kasky’s claims were
restricted by the First Amendment.
The trial court reviewing the case sustained Nikes defense and dismissed the
case without leave to amend. In other words Kasky could not change his original
complaint against Nike Inc. Marc Kasky filed for an appeal with the California Court of
Appeals only to still have the case dismissed.

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Kasky then appealed yet again to the California Supreme Court. The Supreme
Court then reversed the lower court’s decision on the case. The Supreme Court ruled
that Nike’s statements were commercial speech, but doesn’t have as much
constitutional protection as non-commercial speech. If they were found guilty of false or
misleading information they would be punished. Several months after the case Kasky
and Nike settled out of court for $1.5 Million. The settlement stipulated that Nike make
investments to improve and strengthen workplace monitoring and factory worker
programs.
Questions
o Do you believe filing the lawsuit on the basis of free speech as Kasky did is an
effective way to combat the sweatshop issue?
We feel that Kasky had an effective way to combat the sweatshop issue by filing suit
against Nike. After filing suit and going through the Supreme Court Kasky and Nike
came to an agreement. Part of the settlement ensured the improvement and
strengthening of workplace monitoring and factory worker programs. Nike was put on
the spotlight for their unethical business practices. Most people would agree it is
unethical to contract work overseas to workers being paid less, work longer hours, and
having these workers working in terrible conditions. America has a great standard for
working conditions which the Occupational Safety and Health Administration
(OSHA)ensures. However, since Nike contracts other countries to produce their goods,
OSHA does not apply outside of the United States.

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o Thinking in terms of the utilitarian theory, what ethical issues do companies
like Nike contemplate?
There are a few ethical issues that all companies, not just Nike must contemplate.
One large issue is taking jobs overseas in order to pay lower wages. In 1984 Nike
closed their last U.S factory costing 64,000 Americans their jobs. They also weigh the
issues of the working conditions in the countries they choose to contract their products
to, and the public image that sends.
Bibliography
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Glenn, T. (n.d.). Nike's Cheap Labor. Retrieved from CLR Labor:
http://www.clrlabor.org/alerts/1997/nikey001.html
Halbert, T., & Ingulli, E. (2012). Law and Ethics in the Business Environment (7th ed.). (R. Dewey, Ed.)
Mason, OH: South-Western, Cengage Learning.
Law.com. (n.d.). Kasky v. Nike Inc. Retrieved from Law:
http://www.law.com/regionals/ca/opinions/may/s087859.shtml
Reclaim Democracy. (n.d.). Nike V Kasky - Corporate Right to Lie? Retrieved October 29, 2011, from
Reclaim Democracy: http://reclaimdemocracy.org/nike/