What legal lines can’t NFTs cross? The Nike v StockX lawsuit may provide answers

What legal lines can’t NFTs cross? The Nike v StockX lawsuit may provide answers

Anita Gogia is an IPilogue Writer and an incoming 2L JD Candidate at Osgoode Hall Law School.

On February 3rd 2022 Nike Inc. sued StockX LLC for trademark infringement, false designation of origin, trademark dilution, and related causes. Nike alleges that StockX is selling unauthorized non-fungible tokens (“NFTs”) of Nike sneakers.  These issues are novel in their involving the metaverse. This case has the potential to define the scope of trademark rights against unauthorized uses in the world of NFTs. NFTs are unique digital assets that are digital representations of ownership of real-world items.

The Nike Suit

Nike claimed that the StockX NFTs were not a collaboration with them, and that they were authorized by Nike to be sold and promoted. Nike argues that the  use of Nike trademarks are “intentionally deceiving” consumers into believing that these NFTs were Nike-sponsored. Nike has taken steps to venture into the metaverse, having acquired RTFKT Studios, an NFT-creator company, in hopes of combining blockchain technology with sneaker culture and fashion by selling Nike’s own digital tokens.

Nike claimed trademark dilution, pointing to  StockX’s heavy use of trademarks in attracting consumers familiar with the Nike brand. Nike argued that the NFTs’ inflated prices and terms of purchase and ownership have led to public criticism and opinion that the StockX NFTs are a scam. With consumers attributing scams to Nike, the use of Nike’s marks on these NFTs have generated negative associations with Nike in a way that harms Nike’s reputation and immense goodwill.

Nike seeks an injunction to stop StockX from selling any NFT products using Nike trademarks, an order of destruction of the infringing NFTs, and an order granting monetary, statutory, and punitive damages.

StockX Vault NFTs

StockX has sold over 500 Nike-branded NFTs which can be redeemed for the physical shoes “in the near future.” On March 31, 2022, StockX filed a response explaining that the NFTs are not sold as virtual assets, but are rather to authenticate physical shoes. StockX also claimed their resale methods are protected by the first sale doctrine and their use of Nike products tied to NFTs are descriptive fair use and/or nominative fair use.

Recent Developments

On May 10th 2022, Nike filed a memo in support of its motion for leave to file a first amended complaint in a revised lawsuit. In addition to the previous causes of action, Nike has asked the court to add counterfeiting and false advertising claims against StockX. Nike purchased four pairs of shoes from StockX that were supposedly “verified to be authentic,” but turned out to be counterfeit — one of which matched a StockX NFT. In particular, Nike explained in the memo that the counterfeit shoes had StockX’s “Verified Authentic” hangtag and came with a receipt from StockX stating that the shoes were “100% Authentic.”

The StockX slogan, “Buy/Sell Authentic Guaranteed” gives consumers a promise for verified products through their authentication services. In a recent statement, StockX expressed that they take “customer protection extremely seriously” and “invested millions to fight the proliferation of counterfeit products.” StockX has previously responded that Nike’s claims are "curious given that their own brand protection team has communicated confidence in our authentication program, and that hundreds of Nike employees – including current senior executives – use StockX to buy and sell products."

Nike’s case depends on whether StockX can prove that the NFTs are a form of proof of ownership rather than virtual assets themselves. StockX responded that the redemption process merely illustrates that they are not virtual assets. This distinction may be StockX’s attempt to distinguish themselves from Hermès Int’l v. Rothschild in which an artist was sued for selling NFTs depicting the Birkin Bag and calling it “METABIRKINS”see previous article here. Since shoe ownership can change by trading the NFTs, StockX also demonstrates that their NFTs provide a sustainable solution to selling collectibles, as the shoes are not repeatedly shipped between consumers and StockX for authentication — the NFTs are already correlated to a specific product authenticated by StockX.

Nike argued that the NFTs are virtual assets as a redemption process is currently unavailable. Nike claims StockX is minting NFTs to profit from Nike's goodwill in the streetwear scene. For example, a physical pair of Nike Dunk Lows are $282 on StockX, yet the StockX NFT linked to this shoe has traded for over $3,000.

Nike currently has multiple pending trademark applications for their NFTs. This case will be a significant development in solving metaverse-related legal issues, and may clarify the boundaries of NFT trademark-usage.