Nike Inc., the world's largest maker of athletic shoes, agreed to pay $1.5 million to settle a California consumer's lawsuit that tested the limits of corporate free speech.
The settlement resolves claims that Nike lied in a public relations campaign responding to allegations that its shoes were made in overseas sweatshops.
In his suit, Mark Kasky contended the campaign violated a California truth-in-advertising law, while Nike argued that its public statements were constitutionally protected. The U.S. Supreme Court in June allowed Kasky's case to proceed.
"For Nike, this is money well spent," said Jonathan Turley, a law professor at George Washington University in Washington. "Any trial in this case would have been a bloody nightmare - the type of press that a company like Nike would never welcome."
By declining to decide Kasky's case, the Supreme Court left intact a California court's decision that lets people sue companies over alleged misstatements. The ruling, which applies only in California, may have a national impact, said Boston College law professor Kent Greenfield.
"If you want to do business in California, you have to follow California law," Greenfield said. "And most businesses want to do business in California."
Nike said the settlement money would be spent on programs to strengthen workplace monitoring in developing countries and improve factory worker education programs.
"We have learned a great deal in the five years since this case was first filed about the challenges we and others face in addressing issues in manufacturing environments," Nike Vice President Maria Eitel said in a statement.
Nike's payment will be made to the Fair Labor Association, a nonprofit group in Washington founded in 1999 to monitor compliance with a workplace code of conduct to ensure that products aren't made by sweatshop labor.
"Mr. Kasky is satisfied that this settlement reflects Nike's commitment to positive change where factory workers are concerned," said Kasky's lawyer, Patrick J. Coughlin of Milberg Weiss Bershad Hynes & Lerach.
Nike, which is based in Beaverton, Ore., made the contested statements in response to claims of sweatshop conditions at factories owned by subcontractors in Asia.
News reports in the mid-1990s said workers made less than the minimum wage, worked overtime without pay, were exposed to harmful chemicals and suffered verbal, physical and sexual abuse.
Nike denied the allegation in press releases, a letter to university athletic directors, a pamphlet on its production practices and letters to newspaper editors.
Kasky's 1998 lawsuit said Nike violated California's false-advertising and unfair trade practice laws by insisting it guaranteed workers a living wage, free meals and health care, and that working conditions complied with local laws.