Gag Order

Companies tempted to speak out on public controversies may have to think twice, or stay out of California. Last month, the state's top court ruled that ads and statements issued by Nike during a debate regarding its overseas labor practices constituted "commercial speech" and would not receive the constitutional protections afforded political speech. The court held that Nike could be sued under California's unfair competition and false advertising laws if any statements issued regarding the controversy were alleged to be false. The fact that Nike's statements might not have been advancing an economic transaction was not sufficient to shield it from legal attack. The court said it wants businesses to speak "truthfully," but what is true or false is rarely clear-cut in public debate. Companies could be reluctant to speak out at all if the price might be an expensive lawsuit. Even the brave will find that fact checking and lawyers' reviews will make it tough to issue timely and vigorous responses to public criticism without risking liability. The specter of suits, which are costly to defend (and to settle), will further chill companies' speech. This is bad not only for companies but for the public, which will lose the benefit of uninhibited debate on serious public issues. The only "winners" are the critics of business, who will continue to enjoy the full protection of the First Amendment. But as a dissenting judge said, "handicapping" one side is not only "ill considered," it is "unconstitutional." Any company that does business in California and conducts a national advertising, marketing or press campaign may now find itself sued. Worse, any California resident can sue regardless of whether he or she has suffered damages as a result of the allegedly false statements. What does all this mean for ad agencies? A lot. No agency was named as a defendant in this suit, but similar claims are frequently made against advertisers and agencies together as co-defendants, based on the notion that the agency "aided and abetted" or "conspired" in the wrongful conduct. There is no reason to believe this will not be the case in the future. Now more than ever, it is important for agencies to enter into agency-client agreements that protect them from liability for content provided by clients, even in connection with campaigns that contain what may have been (and common sense suggests still is) noncommercial political speech. The Nike decision should also cause agencies to re-examine the precise language in their agency-client agreements. Agencies will want to ensure that the indem nity provision is broad enough to cover all possible risks, even those that arise from making claims in media outlets that most people would not regard as advertising. They should seek indemnification not only for potential damages, but also for attorneys' fees and other costs incurred in defending lawsuits. It remains to be seen how Nike will fare before the U.S. Supreme Court, presuming the decision is appealed. Until then, companies will find themselves at a significant disadvantage in both the court of public opinion and the courts of law.

Brand Marketing

Gag Order

Michael C. Lasky Is A Partner At The New York Law Firm Of Davis & Gilbert Llp. He Can Be Reached At Mlasky@dglaw.com.

About

Subscriptions

Events

Publications

WORK SMARTER - LEARN, GROW AND BE INSPIRED.

Subscribe today!

Michael C. Lasky Is A Partner At The New York Law Firm Of Davis & Gilbert Llp. He Can Be Reached At Mlasky@dglaw.com.