Corporate Lying Is Bad

But allowing it is good

I could pack this article with lies and, legally speaking, you couldn't touch me. I could make up statistics, distort my research, trumpet misleading claims, or tell you that I drive a 2002 Lexus sedan with 18,000 miles on it, when in fact I drive a 1990 Chevrolet Cavalier wagon with 118,000 miles. Now, I have not in fact filled this article with lies, because I am a stand-up guy. Take my word for it. But the point is that, unless I commit libel or fraud, lying is legal.

Why? Because empowering the courts to act as roving truth commissions would overburden the legal system and chill public discourse. Centuries of hard experience with inquisitions and censorship boards and speech codes have proved that vigorous, uninhibited public debate is the only reliable way to sort truth from falsehood. The cure for bad speech is more speech. This is the great paradox at the heart of the First Amendment: To learn truth, allow lies.

All well and good. But there is that fraud exception. If I claim that my 1990 Cavalier wagon is a 2002 Lexus sedan during a conversation in which I happen to be selling you my car, I have left the First Amendment behind. I have committed an illegal act, and no one would assert otherwise. That is because my claim, in this particular context, would be "commercial speech": speech that, as David C. Vladeck, a law professor at Georgetown University, put it recently in an interview, is "directed at consumers describing the price or type of goods or services for the purposes of inducing a sale."

Also well and good. But what if, instead of misrepresenting my car, I try to raise its price with ads or articles claiming—falsely or tendentiously—that old cars are safer and more reliable than new cars? Am I committing fraud? Or am I stirring controversial ideas into the public debate? Or both?

If you think the answer is obvious, there is a seat waiting for you on the Supreme Court. This month, in the case of Nike v. Kasky, the Court will rule on a corporate-speech case that is as difficult as it is important.

Nike is a giant international shoe company. Marc Kasky is a California activist. In the mid-1990s, Nike came under fire from labor groups and liberal activists for allegedly producing its shoes in overseas "sweatshops." Nike denied the charge. Kasky sued Nike for consumer fraud, claiming that Nike's denials were false and misleading. What makes the case especially interesting is that the denials at issue were not shoe ads, which would clearly have counted as commercial speech; they were letters to newspapers, letters to college coaches, pamphlets, and press releases that often never mentioned any Nike products at all.

Nonetheless, says Vladeck, a former lawyer for Public Citizen (a liberal consumer group), "at least some of this speech plainly fits the classic illustration of commercial speech. They're trying to persuade their customer base not to leave them. If a company is speaking to its consumers about the characteristics of the products it sells and the services it provides, then it is engaging in commercial speech." The California Supreme Court agreed.

Nike, in reply, says it was defending itself in the marketplace of ideas, discussing matters of public importance. It asked the U.S. Supreme Court to dismiss Kasky's lawsuit on First Amendment grounds. "There's no dispute," says Vladeck, "that the company is claiming a right to make false statements to the public." In other words, the company says it should not even have to defend its speech in court. Critics can argue with Nike, activists can expose it, journalists can investigate it, and protesters can picket it. But, according to Nike, this is a question of disagreement, not fraud; and of participatory speech, not commercial speech. The law should butt out.

Across town, at the Justice Department, another lawsuit raises similar issues. The Bush administration is suing the major tobacco companies for racketeering—defined, in this case, as conspiring to lie to the public about cigarettes' harmfulness and addictiveness, and about the companies' alleged marketing to youths. The government wants changes in the companies' practices plus "disgorgement" of $289 billion (yes, billion with a "B"—almost the size of Congress's latest tax cut). According to Kenneth N. Bass, a Kirkland & Ellis partner who represents one of the tobacco companies (Brown & Williamson), "We'll be eagerly waiting to hear what the Nike case says." The tobacco defendants are due to file motions for summary judgment on August 1. "The First Amendment will play a significant role in those filings," he said.

He declined to elaborate, but it is pretty clear that the tobacco companies intend to argue that they, like Nike, were participating in a public debate and defending themselves against charges they regarded as unfair and incorrect. If the government prevails, says Bass, "companies would be in a very awkward position where, if somebody makes a charge against them, they would have to think twice about denying the charge or responding in any way other than saying, 'We can't comment on that.' You could go after all kinds of companies and people and organizations by making a charge against them, and then when they deny it, you convert it into some kind of fraud claim."

No wonder Nike has attracted so much attention. Supporting Kasky are Public Citizen, the Sierra Club, ReclaimDemocracy.org ("Restoring Citizen Authority Over Corporations"), and other mostly liberal groups that argue, as the Sierra Club's brief puts it, that "Nike cannot be allowed to lie to the public about factually verifiable information such as wages and conditions in its factories" for commercial gain. Supporting Nike's free speech claim are the National Association of Manufacturers, the U.S. Chamber of Commerce, the advertising industry, various large corporations, and the AFL-CIO, all of which—

Wait a minute. The AFL-CIO?

It is true. The nation's largest labor organization has filed what must be one of the most interesting briefs of this or any recent year. "We vigorously assert that Nike is guilty of unfairly exploiting workers," the brief says. It goes on to agree with Kasky that Nike's public statements "have been calculated more to mislead than to inform the public." Nonetheless: "We are certain that this debate is, and in the interest of the disputants and the public should be, an open free speech debate under the First Amendment and not one subject to legal regulation under the commercial speech doctrine."

The AFL-CIO could have stayed out. Why assist a corporate adversary? "Two reasons," says James B. Coppess, an AFL-CIO associate general counsel. "Nike didn't want to be in this debate saying, 'We don't use slave labor.' That was not viewed as a good advertising message. We're the ones that wanted them to talk about it, and pushed them until they did. We wanted to debate with them. Their participation in the debate is necessary for us to effectively convey our views."

He notes that Nike responded to the Kasky suit by discontinuing the public release of its annual corporate-responsibility report. "What the California Supreme Court did," says Coppess, "was give Nike the excuse it had been looking for to shut up."

Moreover, Coppess says, "by the reasoning of the California Supreme Court, we're next. We may not be selling products, but we're also engaged in economically motivated speech. We're pushing to achieve economic benefits for our members."

In its amicus brief, ReclaimDemocracy.org argues that corporations' free speech rights should be limited "because corporations are artificial, state-created entities." Nonprofits, however, are themselves corporations. They, too, are artificial, state-created entities. And in America, playing fields tend not to stay tipped for long. If profit-making companies are placed in legal jeopardy for rebutting public-interest groups' charges against them, they will look for a way to draw public-interest groups under the same umbrella. Already, campaign finance law regulates election-related speech by nonprofits, and recent reforms tightened those restrictions. So it is not nutty for the AFL-CIO to worry that lawsuits targeting corporate speech may come back to haunt unions and nonprofits.

Conservatives have recently charged the Brennan Center for Justice, a liberal advocacy group, with conducting fraudulent research in order to help pass the McCain-Feingold campaign finance law. "Deliberately faked," accused David Tell in The Weekly Standard. The center and its supporters dispute the charge—plausibly, as far as I can tell, but that isn't the point. The activists who want to put Nike in the dock for fraudulent speech might ask themselves how they might feel in a few years seeing, say, the Brennan Center in the same place.