Andrew Quinn, San Francisco – California's Supreme Court, in an important free speech ruling, said on Thursday that sportswear giant Nike Inc. can be sued for false advertising over a publicity campaign that sought to dispel reports that Asian sweatshops are used to produce its famous footwear.

In a split decision, California's top court found that Nike's efforts to defend its Asian business practices were in essence commercial, and thus not subject to the free speech protections guaranteed by the US Constitution.

"Our holding ... in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices," the court said in its 4-3 majority decision.

"It means only that when a business enterprise, to promote and defend its sales and profits, makes factual representations about its own products or its own operations, it must speak truthfully." In strongly worded dissenting opinions, three justices argued that Nike should enjoy free speech protections when attempting to protect its labor record. "While Nike's critics have taken full advantage of their right to 'uninhibited, robust, and wide-open' debate, the same cannot be said of Nike, the object of their ire," Justice Ming Chin wrote in one dissent.

"When Nike tries to defend itself from these attacks, the majority denies it the same First Amendment protection Nike's critics enjoy." Nike's lawyers said they would probably appeal the decision to the US Supreme Court, while a company statement said the ruling set a "dangerous precedent" by seeking to deny businesses the right to defend themselves in public debate. Sweatshop allegations

The Supreme Court decision overturned an appeals court ruling which held that Nike's efforts to defend itself against sweatshop allegations were noncommercial free speech and thus immune from legal challenge.

The case stems from a 1998 civil lawsuit filed in California which charged Nike with willfully misleading the public about working conditions for the Vietnamese, Chinese and Indonesian laborers who produce the footwear with the distinctive "Swoosh" logo.

The lawsuit was among a number of high-profile attacks on Nike over conditions at Asian factories where workers, mostly women aged 18 to 24, are subcontracted to produce most of its shoes.

The California suit said Nike knew that these workers were subjected to physical punishment and sexual abuse, endured dangerous working conditions, and were often unable to earn a "living wage" despite workdays that could be 14 hours long.

It charged Nike with violating California laws barring false advertising by deliberately obscuring these facts, alleging that the Beaverton, Oregon-based company mounted an aggressive advertising and public relations campaign portraying itself as a "model of corporate responsibility" in an effort to boost sales of its products.

Nike rejected the charges, and argued that the case should not proceed because all of the statements cited in the lawsuit were protected as free speech.

The California Supreme Court emphasized that it was not ruling on the merits of sweatshop charges.

But its decision to allow the suit to go forward marked a potential setback for Nike and other firms that have sought to allay US consumer concern over overseas labor conditions through publicity campaigns depicting happy, well-paid workers in clean, safe factories.

"This is a very important ruling," said Alan Caplan, one of the lawyers who filed the original suit. "Now in California, if a company is going to discuss about the labor conditions in their factories they cannot be deceptive. That is a big step."

ACLU sides with Nike

The American Civil Liberties Union (ACLU), which filed an amicus brief supporting Nike's position, said the California decision was bad news for businesses around the country.

"This is not a good decision for free speech values. Free speech is the loser here," said ACLU staff attorney Ann Brick, noting that some of the "speech" covered by the California decision involved such traditional free speech outlets as letters to the editor of the New York Times.

"There is a huge chilling effect. It is very expensive to be defending your statements in a court of law. This decision is going to have national impact." Nike lawyer Jim Carter said the company would probably seek review by the US Supreme Court, saying the California decision stripped the company of its basic constitutional right to defend itself against unfair allegations.

Nike spokesman Vada Manager, meanwhile, said the struggle over free speech was diverting attention from the real progress Nike has made in improving conditions and wages for Asian laborers who make some 85 percent of its footwear.

"Is a worker better off today than they were in 1998 when the suit was filed? The answer is yes. And we are going to continue programmatically to [make improvements]," he said.

"By no means do we think we have it all the way perfect. But over the last 5 years the situation has really improved." Caplan said the plaintiffs were now ready to proceed with legal arguments about the sweatshop allegations.

"The case marks an important victory for human rights," Caplan said. "It is an important precedent with implications well beyond Nike."