The US Supreme Court has said it will not rule on a case that could have defined the difference between free speech and advertising - thus allowing a lawsuit against Nike to go ahead.
Campaigners could now put the boot in
The case revolves around the question of whether Nike subcontractors in Vietnam, China and Indonesia run sweat shops where workers are abused.
Nike launched a public-relations campaign to reject the allegation in the 1990s, leading activist Marc Kasky to sue them - claiming that Nike was engaging in false advertising.
Nike tried to have the case thrown out of court on the grounds that its campaign was protected by the US Constitution, which guarantees freedom of speech.
On Thursday, the Supreme Court refused by a vote of 6-3 to rule on Nike's free speech defence - which means the lawsuit will proceed.
The Supreme Court's verdict is a decision not to decide, not a ruling on the merits of the case.
Nike expressed disappointment at the ruling.
"Companies should be free to voice their opinions through PR or advertising on major issues that impact their business," the company said, vowing to continue to "fight to preserve the right to free and open debate".
Nike, the world's largest maker of sports shoes, had claimed that the US Constitution guarantees the right to make their statements when they are about a social issue, rather than the product itself.
The case had been closely watched and is seen as a test of corporate free speech.
The Supreme Court did not discuss the question of whether Nike was engaged in constitutionally protected "political speech" or the more regulated "commercial speech."
The majority opinion simply said the earlier decision to hear the case had been "improvidently granted," leaving the door open to an appeal if Nike is convicted.
The US Government, which has been supporting Nike in court, has already warned that a ruling against Nike will give activists too many rights to sue companies.
Nike was supported by a wide range of groups including the American Civil Liberties Union, the Chamber of Commerce, conservative legal scholars, and a group of 40 media outlets.
Former presidential candidate Ralph Nader, who made his name as a consumer rights advocate, weighed in against Nike.
The suit now returns to a lower court.
If Nike loses the suit, it can try raising the free speech argument at the Supreme Court again.
Separately on Thursday Nike reported rising earnings as strong overseas sales helped to offset weaker demand in the US market.
Profits for the March to May period were $246.2m, up from $208.4m in the same period last year.
Over the year to the end of March, Nike earned $740.1m, compared with $668.3m the previous year.
Total sales for the 12 months were up 8% at $10.7bn.
Nike chairman Phil Knight called the year one "for the record books" and noted that the results came "despite a challenging
geopolitical and economic environment".