Nike Sues Online Marketplace for Launching Non-Fungible Tokens (NFTs) Based on Nike Shoes, Testing the Limits of Crypto Trademark Law and What an NFT Really Is is.
StockX is a retailer of streetwear, bags, and sneakers, among other things. Unlike some market places, it is also an intermediary who collects the objects and verifies their authenticity. StockX built on this system in January by launching NFTs tied to physical assets. The announcement promises these “Vault NFTs” can be exchanged for physical items, but also instantly exchanged as digital goods.
The problem is that Nike shoes are extremely popular on StockX, and its Vault tokens are linked to the name and image of their corresponding products. Nike alleges that the resulting crypto assets constitute trademark infringement, false designation of origin, and trademark dilution, among other violations. The case hinges on whether StockX’s NFTs are an extension of its normal resale process (like a digital receipt of ownership) or whether they are products in their own right, with potentially significant implications for NFTs in general.
In his trialfiled on February 3 and previously covered by The law of fashion, Nike notes that StockX has launched nine limited-edition Vault NFT series, and eight are related to Nike shoes. He claims this has produced a collection of digital items that look like official Nike merchandise. “StockX almost exclusively used Nike’s trademarks to launch its NFT Vaults because it knew it would attract attention, drive sales, and confuse consumers into believing that Nike was collaborating with StockX on the NFT Vaults,” says- he. “StockX uses Nike’s trademarks to market, promote and attract potential buyers.” StockX declined to comment on the lawsuit.
Nike notes that you can’t redeem NFTs for real shoes yet, which makes them less clearly like receipts of ownership – which is how StockX has positioned them. (To make matters even more complicated, “NFTs” aren’t technically the images StockX displays; they’re sections of code on a cryptocurrency blockchain that include a link to an image hosted elsewhere.) Some fine print also give StockX the right to cancel the NFT. Nike characterizes the entire launch as being plagued with “inflated prices and murky terms of purchase and ownership”, and whether people believe Nike is behind the project – as some social media posts suggest on file – it would damage Nike’s reputation.
Nike has a particularly strong incentive to avoid brand confusion. Last year, the company acquired NFT studio RTFKT (pronounced “artifact”) to create its own crypto collections. RTFKT launched a collection of NFT sneakers before its acquisition, and like StockX, it planned to allow buyers to exchange their NFTs for real shoes. But the NFTs featured shoes with a custom design that didn’t highlight the product’s brand. It is likely to work on more visible Nike-branded tokens under its new owner.
Many NFT controversies involve claims of copyright infringement – typically, a crypto project minting tokens based on an artist’s work without permission. Sometimes an artist and publisher also fight over who owns the relevant rights to a work, such as a Quentin Tarantino NFT lawsuit based on pulp Fiction.
Trademark infringement claims raise different issues here. Under a legal concept called the first-sale doctrine, marketplaces can generally resell goods — and display images of those goods that include trademarks — without permission from the intellectual property owner. “I think you’d say StockX has a right to have a marketplace where they display Nike products,” says attorney Moish Eli Peltz, who practices NFT and Web3 law. “What StockX is saying is we’re basically doing the same transaction, but we’re just doing an NFT to replace the physical shoes.” Nike, on the other hand, argues that NFTs are a separate product leveraging its brand image.
Nike created a potential conundrum for the first sale last year when it sued a line of modified Nike “Satan shoes” created by internet collective MSCHF and rapper Lil Nas X. That case was settled before any argument not be presented in court. But the popularity of NFTs suggests that even if Nike and StockX follow suit here, it won’t be the last stand against crypto brands.