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Davison, Mark --- "Multinational Corporations: Accountability for human rights obligations" [2004] AltLawJl 5; (2004) 29(1) Alternative Law Journal 20

Accountability for human rights obligations


Much has been written about the new wave of law concerning the human rights obligations of multinational corporations (MNCs).[1] The point has now been reached where the question is not whether MNCs have human rights obligations but what is the nature and extent of those obligations and how can they be made accountable for any non-compliance. Numerous models have been suggested but it is unlikely that any one of those models will constitute a 'silver bullet' by itself that will resolve these difficulties. Some of those models involve direct regulation of MNCs' conduct. For example, legislation has been proposed before both the Australian and United States (US) federal legislatures, providing for mandatory codes of conduct that require MNCs to comply with international human rights standards when undertaking extraterritorial operations.[2] France has actually passed legislation requiring French MNCs to provide reports on their human rights and environmental records in foreign countries.[3] Other models include changes to conflict of law rules to make it easier in Australia and the UK (and to a lesser extent, the US) which have allowed greater opportunities to bring domestic corporations within the jurisdiction of domestic courts to consider their liability for actions overseas.[4]

This article discusses other means of achieving the goal of human rights compliance by MNCs via the possible use of consumer protection laws and laws relating to trade marks. These aspects of the law rely on and facilitate the power of market forces in holding MNCs accountable for their conduct. There are some advantages associated with such an approach. One advantage is that if the regulatory regime can be arranged in such a way as to harness market forces and provide an economic incentive to MNCs to meet their obligations, they will engage in effective self-regulation because it is in their interests to do so. Nevertheless, some public resources will still be needed to monitor and, if necessary, correct that self-regulation. In the Australian context, that public investment may need to come from the Australian Competition and Consumer Commission (ACCC) for reasons that are explained below.

Consumer protection laws

Many MNCs rely on a positive public image for their brands. Consequently, they have developed internal codes of conduct in relation to human rights obligations and publicised their efforts to comply with those codes. The cynical point that needs t'o be made here is that the primary concern of some MNCs may be not whether they comply with human rights standards but whether they are publicly seen to be complying with those standards. This leaves open the possibility of misleading statements about their record on these topics and it is here that consumer protection law may have a role to play in ensuring that the rhetoric of MNCs on their human rights records is consistent with their actual performance in the area. Recently concluded litigation involving Nike is an example of this possibility.

Kasky v Nike was an action brought in California by a private citizen that basically alleged Nike had engaged in negligent and intentional misrepresentation, unfair and unlawful business practices and false advertising, in contravention of the Californian Business and Professions Code.[5] The action was based on the allegation that Nike had represented to numerous consumers and interest groups that it had a proper code of conduct in place and that the code was faithfully enforced by the company. The plaintiff sought an order for restitution requiring Nike to disgorge all moneys acquired through these alleged unlawful or unfair business practices, and an injunction requiring corrective advertising.

The truth of those allegations was never tested in court. Nike sought to have the action struck out on the grounds that its statements were non-commercial speech and therefore protected by the American constitutional right of free speech in that the truth or otherwise of their claims should be judged by the public, not by the courts. At first instance and on appeal to the Californian Court of Appeal that argument was accepted. On further appeal to the Californian Supreme Court, Kasky was successful by a 4—3 majority in arguing that the speech in question was of a commercial nature and therefore not protected by the American Constitution. Nike then appealed to the US Supreme Court which denied the appeal on procedural grounds that, basically, in the absence of findings of fact concerning the nature of the speech in question, it was unwilling to intervene at that point in the litigation.

The potential impact of such litigation on MNC's is demonstrated by the fact that Nike recently settled the matter by providing a $1 .5 million payment to the Fair Labor Organisation for worker-related programs in countries where the organisation operates. Presumably, Nike's decision to settle was based on its perception of the potential negative impact on its public image of the ongoing litigation, and the case demonstrates the way in which market forces, in combination with consumer protection laws that ensure the accuracy of information provided to consumers, can help to make MNCs accountable for their conduct.

Section 52 of Australia's Trade Practices Act could be used to achieve results similar to those in the Kasky litigation.[6] However, there are some potential downsides with relying on this and similar legal provisions. One potential difficulty is that it relies on an interested party initiating and pursuing the litigation. Kasky had to have the perseverance to take the matter through four hearings all the way to the US Supreme Court before even winning the right to a trial about the truth of the allegations against Nike. The case is an example of litigation fatigue and the way in which larger organisations can use the judicial system to simply wear down an opponent Such an approach requires people who have the energy, determination, money and skills to run this type of court proceedings, if necessary, for years, especially in the face of obvious evidentiary difficulties.

Use of trade marks

On perhaps a more optimistic note, another legal approach to the issue might be to encourage the use of trade marks and certification trade marks by MNCs to indicate to consumers and investors that they have complied with human rights standards in the process of producing its products. Trade marks are essentially signs or symbols used in relation to goods in order to indicate some characteristics or attributes of those goods. The role of a trade mark is to convey information in a short hand form to those intending to use the goods or services in relation to which the trade mark is used.

Certification trade marks perform a similar role. The di11ference is that certification trade marks may indicate qualities or characteristics of goods or services that may be common to more than one product and more than one producer. An example of such a certification trade mark is the fair trade label.[7] Such an approach has a number of potential advantages. First, the certifying organisations develop specific, transparent definitions of human rights obligations and criteria for determining whether those obligations have been met Second, the process of outsourcing the process of ensuring compliance with human rights obligations should constitute a reliable means of minimising the prospect of adverse publicity for MNCs which may otherwise be subjected to allegations such as those in the Kasky case. Third, this approach has advantages for the many socially responsible investment organisations that base their investment decisions on such issues. Certification by a reliable third party reduces the transaction costs associated with due diligence processes in identifying suitable MNCs for investment. The individual MNCs pay for screening by a third party and that third party certification can then be used by numerous organisations.

In the context of whether a corporation has complied with human rights standards, trade marks and certification trade marks may play a leading role. Such trade marks may, in short hand form, indicate to consumers or investors that goods or services have been made or supplied in accordance with appropriate human rights standards.

There are difficulties associated with such a marketing approach that need to be considered by MNCs. If an MNC uses its own individual trade mark or trade marks, it runs into the difficulty that it will be attempting to convey numerous messages about its corporation's image with only one sign or trade mark For example, a brand such as 'Adidas' may send the primary message that goods carrying that brand are of high-quality It may be difficult for Adidas to also convey information to consumers concerning its compliance with human rights using the same brand name. On the other hand, any negative publicity concerning human rights issues surrounding the MNC may have a negative impact on the value of its brand. Consequently, there may be some advantage in using an additional certification trade mark that operates concurrently with the brand to certify that the goods have been produced in accordance with human rights standards.

The MNC's options

The MNC, therefore, has the following options:

l. lt can rely on its individual trade marks to indicate various aspects of its operations and various qualities of its products. For example, the one trademark may indicate the qualities and characteristics of its products and simultaneously indicate compliance with human rights standards. The Body Shop may well be such an MNC that has effectively associated itself with not only high quality products but also an image as a socially responsible organisation.

2. It can rely on its individual trade marks to indicate the qualities of its products but to remain silent on the 1ssue of its human rights record. The corporation's compliance with human rights standards may operate in a negative way by simply ensuring that consumers do not develop any adverse view of the corporation's attitude towards human rights issues.

3.1t can use a separate trade mark to indicate compliance with human rights standards. This separate trade mark may be a certification trade mark and certification would be obtained from an independent certifying organisation. This approach may confer greater credibility on the corporation's reputation.

4.1t can take the view that it does not need to concern itself with human rights issues because its consumers do not concern themselves with such issues. This is particularly the case with organisations such as perhaps Wal-Mart whose customers are extremely price sensitive and either not particularly interested in any other issue or simply not financially capable of altering their buying patterns. A single, unemployed mother does not have the luxury of discriminating in her purchases on the basis of human rights records of manufacturers. Her only discriminator is price.

In the fourth instance, the only market forces that might 'get at' such an MNC are those possessed by investors or shareholders and basically; we are talking here about institutional shareholders and, in particular, socially responsible investment funds.[8]

The same trade mark issues really apply to those socially responsible investment funds. They need a shorthand means of determining whether MNCs meet their ethical or socially responsible standards. And, again, the certification process is a means by which their search costs in identifying such MNCs can be minimised.


Both these approaches of using consumer protection law or trade mark law rely on the very considerable and growing consumer and investor interest in ensuring MNC accountability for compliance with human rights obligations. Without those market forces, direct regulation would be the only means of ensuring compliance and the costs of enforcing such compliance would be significant and possibly prohibitive. However, these approaches based on market power also demonstrate that the accountability of MNCs may well still require public resources to ensure compliance with legal obligations. For example, in the absence of committed and skilled activists such as Kasky, it may be necessary for public institutions such as the Australian Competition and Consumer Commission (ACCC) to invest some resources in monitoring compliance of MNCs with their human rights obligations, possibly in partnership with non-government organisations with an interest and expertise in the area. The ACCC also has the responsibility to vet applications for certified trade marks to ensure that the rules for use of such trade marks are open and transparent.[9] Consequently; while the actions and attitudes of consumers and investors can have a very considerable impact on the accountability of MNCs, some public resources will still be required to convert those actions and attitudes into effective accountability.

[*] MARK DAVISON teaches law at Monash University.

©2004 Mark Davison

[1] See eg R Sullivan (ed), Business and Human Rights Dilemmas and Solutions (2003); M.T Kamminga and S Zia-Zarifi (eds), Liability of Multinational Corporations under International Law (2000); M. Addo (ed), Human Rights Standards and the Responsibilities of Transnational Corporations (1999)

[2] These are in Australia- Corporate Code of Conduct Bill 2000; a Private Members Bill sponsored by Senator Vicki Bourne (introduced in September 2000); and in the US – the Corporate Code of Conduct Bill 2000; HR 4596 IH, 1ntroduced in the House of Representatives in June 2000 by Congresswoman Cynthia McKinney

[3] Lois relative aux nouvelles regulations economiques, LOI no 2001-420 du 15 Mai 2001 For commentary in English, see Simon Macaire, European lndustrial Relations Observatory Online, New Economic Regulations Law Adopted, May 2001,<http.//www.eiro> at 27 August 2003

[4] In relation to the leading cases in this regard in the UK and Australia, see D. Kinley and S. Bottomley (eds) Commercial Law and Human Rights (2001).

[5] 27 Cal 4th 939 (2002), for the decision of the US Supreme Court dismissing a writ of certioran see Nike v Marc Kasky 539 US (2003).

[6] Sect1on 52 provides that a corporation shall not 'in trade or commerce engage in conduct that is misleading or deceptive or likely to mislead or deceive'.

[7] For details of this label see the website of the Fairtrade Label Organisation <> at 9 February 2004.

[8] The amount invested in such funds has increased to over US$2.3 trillion in the US Report Socially Screened Assets Grew 15 Times Faster than AIIUS Managed Portfolio Assets Since 1999 <> at 9 February 2004 Australian Ethical lnvestments is one of the most successful managed funds in Australia.

[9] See s 175 of the Trade Marks Act 1995 (Cth).

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