A new Nike lawsuit will offer an early litmus test of what does and does not amount to trademark infringement in the brave new world of NFTs.
Last month, StockX introduced what it called “Vault NFTs.” The collection ties a digital token which users can trade among themselves to a real, physical sneaker that the resale platform holds in its “climate-controlled, high-security vaults.” These sneakers—eight of the nine silhouettes in the initial collection belong to either the Nike or Jordan brands—are visually depicted on the graphics used to represent the NFTs, as well as materials promoting the launch.
According to StockX, those who own one of its NFTs will be eligible for “exclusive” benefits, including access to limited promotions, early releases and “cultural events.” Those who wish to redeem their digital NFT for the physical item will be able to do so in the “near future,” but will have to pay a $35 withdrawal fee, a $14 shipping fee and applicable sales tax. Per the platform’s terms and conditions, StockX retains the power to automatically redeem a user’s NFT for an “Experiential Component,” at which point it would remove the NFT from the user’s portfolio. This Experiential Component could include “unlocking a prize or entry into an exclusive sale.”
Nike, which demonstrated its own interest in virtual fashion and NFTs in December when it purchased the virtual fashion startup RTFKT, filed a complaint in federal court Thursday alleging the collection constituted trademark infringement, false designation of origin, unfair competition, trademark dilution and injury to its business reputation.
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Moish E. Peltz, a partner at the law firm Falcon Rappaport & Berkman who specializes in intellectual property and emerging technologies, told Sourcing Journal that “StockX may be able to rely on the concept of ‘nominative fair use.’” Under trademark law, a reseller is allowed to use someone else’s trademark to refer to goods and services that are associated with the mark, he said. This defense is generally permissible so long as the product is not readily identifiable without the trademark; only as much of the mark as is “reasonably necessary to identify the product” is used; and the mark does not suggest sponsorship or endorsement by the trademark owner.
“Arguably, StockX may use the Nike trademarks as is necessary to accurately identify the origin of Nike shoes and to fairly resell authentic Nike products through their marketplace, so long as the use of the mark does not suggest an affiliation or endorsement from Nike,” Peltz said. “The traditional StockX marketplace essentially already relies upon this legal doctrine. The question now before us is how this legal framework will be applied to NFTs being used as the mechanism for the sale of those same trademarked goods.”
Though StockX’s terms and conditions assert that a Vault NFT “has no value beyond that of the associated Stored Item,” Nike argues that they do in fact hold additional value. Its complaint notes the exclusive benefits that come with ownership, the vaguely defined “Experiential Component” that StockX can give owners in compensation should it decide to remove an NFT and the fact that the NFTs have traded for prices well above their physical counterparts.
“StockX’s Vault NFTs are far more than just physical Nike shoes, and StockX’s claim that a Vault NFT exclusively functions as a traceable digital receipt is belied by its statements,” Nike wrote in its lawsuit. “Those statements reflect the fact that StockX’s Nike-branded Vault NFTs, whose purchasers can trade or collect and display in their portfolio, are new virtual products that StockX has bundled with additional StockX services and unspecified benefits.”
Nike, which plans to release “a number of virtual products” with RTFKT this month, further argued that the Virtual NFTs are likely to confuse consumers, create a false association with Nike and dilute the footwear giant’s trademarks. To prove its point, it pointed to comments on social media that show how certain consumers have already concluded Nike was involved in StockX’s NFTs, including one that describes the endeavor as “a stupid scam for Nike to make money.”
Though StockX’s NFTs have sold for well above both the sneakers’ retail and typical resale prices, the endeavor has received plenty of criticism on social media. A January post about StockX’s NFTs in Reddit’s r/sneakers community has received 272 comments, most of them negative.
“StockX’s prominent use of Nike’s trademarks in connection with these dubious virtual products has already generated negative associations with Nike in a way that harms Nike’s reputation and the immense goodwill that Nike has amassed in its brands,” Nike wrote.
StockX declined to comment.
Though Nike has been quietly filing patents related to “cryptographic digital assets” for years, its intent to dive into digital footwear has become much clearer in recent months, starting in late October when it filed applications to register some of its most iconic trademarks in connection with “downloadable virtual goods.” Though a host of other companies have taken similar actions—including Walmart, Authentic Brands Group and New Balance—it has been unclear exactly how necessary these filings would ultimately become.
Nike’s StockX lawsuit may serve as an early benchmark. In a related court filing enumerating the relevant trademarks, six of October’s proposed trademarks are listed, as well as 17 other older marks. A lawsuit filed by Hermès International, meanwhile, may offer another case study. Filed last month, the complaint accuses the creator of the MetaBirkins NFT collection, Mason Rothschild, of, among other things, trademark infringement, false designations of origin, false descriptions and representations, trademark dilution and cybersquatting.