CLOSE-UP: LIVE ISSUE - NIKE. Nike faces legal challenge to its freedom of speech

The legal repercussions of the case against Nike may affect every advertiser's PR. A cold wind has been blowing across the Atlantic in recent weeks. And its chilling effect has not been confined to spectators at Wimbledon.

Last year, the US Supreme Court agreed to a request by Nike to consider whether its public relations pronouncements benefit from the free speech protection afforded by the First Amendment. This is no mere academic question.

Nike has been subject to a long-running dispute with a campaigner, Marc Kasky. He disputes the defence mounted by Nike in various press releases and other publications to accusations about the exploitation of workers in the Third World. Kasky has used California laws against false and misleading advertising to question the veracity of that defence, as well as a state law that allows individuals to bring cases in the public interest, despite not having suffered any harm personally.

The California Supreme Court decided that the definition of "commercial speech" is speech by a business to consumers, concerning statements of fact about that business and intended to promote sales of its products.

If Nike's PR activity was caught by that definition, it would be subject to the laws concerning false and misleading advertising, and not entitled to full First Amendment protection.

The US Supreme Court originally said it would review that decision. But on 26 June, it announced that it cannot consider the point until the California trial court has determined whether Kasky has a case under the state law and, furthermore, whether Nike's PR campaign was, in fact, commercial speech under the test established by the California Supreme Court.

So why all the fuss? Because it will be several years before the case comes back to the Supreme Court. And in the meantime, commercial organisations embroiled in pubic debates over issues such as foreign labour practices, the environment or the health implications of fast food or alcohol consumption must assume their PR activity will be subject to challenge laws concerning misleading ads.

This could impact upon British businesses as well. In view of the long-arm approach to jurisdiction taken by Californian courts, it would be prudent for British companies owned by US parents to assume that materials published on their UK websites might be subject to scrutiny in California.

Given the less reverential approach to freedom of speech in the UK, the balance of power here has traditionally favoured business rather than activists. Just ask the unsuccessful defendants in the infamous "McLibel" case.

But following the incorporation of the European Convention of Human Rights into English law, the media now has a defence to defamation actions provided they have acted responsibly in publishing the allegations, even if they prove untrue. Like the US Constitution, the convention guarantees the right to freedom of expression, but this is subject to restrictions in the interests of public safety, the protection of health or morals and the reputation or rights of others.

And in a further parallel with the US, cases decided under the convention draw a distinction between commercial and political speech. The legality of restrictions imposed on free speech by business have tended to be upheld, except where issues of public interest are involved. For example, a total ban in Spain on advertising of professional legal services was permissible, whereas a Swiss ban on an infomercial questioning microwave safety was deemed unlawful.

So will our domestic activists be encouraged by Kasky's success to challenge PR activity by British businesses? The definition of an advertisement under the Control of Misleading Advertising Regulations appears to be broad enough to catch PR materials. And the regulations place the Office of Fair Trading under a duty to consider complaints about misleading advertisements, provided that the normal means of redress have been exhausted.

As PR is outside the Advertising Standards Authority's remit, activists could go straight to the OFT. In practice, however, the OFT would take a lot of persuading.

But what would happen if the OFT did decide to bring a case under the regulations? Nike would face serious difficulties in defending its statements on the basis of the freedom of speech provisions in the convention. Its statements were essentially about Nike business practices, rather than a contribution to a general debate about the exploitation of Third World labour, and so were commercial. Nike's free speech arguments would be less likely to succeed in the UK than in the US.

Even if your sympathies are with David rather than Goliath, it would also be wrong to assume that consumers will benefit as a result of this ruling. It means that a corporation such as Nike is fighting a PR battle with one hand tied behind its back. If you believe that truth emerges from two adversaries putting their cases to the best of their ability, then this decision won't help. Consumers need confidence that both the pressure groups that claim to represent them and the businesses that they attack are being judged by the same standards of truthfulness. And consumerism need not only operate as a stick to beat business. It can also act as an incentive for business to adopt better practices. But if a business cannot tell the world about its repentance, then why bother?

Brinsley Dresden and Giles Crown are partners at the law firm Lewis Silkin.

NIKE'S STATEMENT - From www.nike.com/nikebiz/nikebiz.jhtml

"We are pleased that the only justices who addressed the legal arguments recognised the importance of the First Amendment in this case and the significance of the issues.

"The fact is that the Supreme Court was clearly troubled by the decision of the California judges and the chilling effect that the decision will have on speech. But, the court did not believe it had the authority to decide the case at this time.

"By deciding that the court is precluded from hearing this case at this time, today's procedural ruling returns the case to the California courts. A number of legal issues remain to be resolved that could have significant impact on the suit before the case could proceed to trial.

"Our fight to preserve the right to free and open debate moves forward."