Nike is suing over NFTs. In the complaint that it filed in a New York federal court on Thursday, the sportswear titan claims that sneaker and apparel marketplace StockX is on the hook for trademark infringement and dilution, as well as unfair competition, in connection with its offering up of non-fungible tokens (“NFTs”) tied to images and physical versions of Nike footwear – albeit without receiving its authorization. To make matters worse, Nike claims that StockX has “inflated [the] prices” of the NFTs and has included “murky terms of purchase and ownership,” which have allegedly “already led to public criticism of StockX and allegations that [its] Vault NFTs are a scam.”
Setting the stage in its 50-page complaint, Nike asserts that NFTs “are an exciting way for brands to interact with their consumers in and out of the ‘metaverse,’ and diverse commercial applications of NFTs have emerged throughout the past two years.” At the same time, the Swoosh claims that “novel product offerings, burgeoning technologies, and gold rush markets tend to create opportunities for third parties to capitalize on the goodwill of reputable brands and create confusion in the marketplace,” and NFTs – and the metaverse, more broadly – have become “a virtual playground for infringers to usurp the goodwill of some of the most famous trademarks in the world and use those trademarks without authorization to market their virtual products and generate ill-gotten profits.”
This is where StockX comes in, per Nike, which alleges that in connection with its newly-launched NFT venture, the Detroit-based marketplace is “minting” NFTs that make “prominent use [of] Nike’s trademarks, marketing those NFTs using Nike’s goodwill, and selling those NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that those ‘investible digital assets’ (as StockX calls them) are, in fact, authorized by Nike.” To date, Nike claims that StockX has sold 558 individual Nike-branded Vault NFTs. “Some of the Vault NFTs associated with Nike products are editions of 1,” per Nike, while “others are editions of 100, and some are as many as editions of 250.”
The problem, according to Nike, is that it “did not approve of or authorize StockX’s Nike-branded Vault NFTs,” and thus, the “unsanctioned products are likely to confuse consumers, create a false association between those products and Nike, and dilute Nike’s famous trademarks.” Indeed, Nike alleges that in connection with StockX’s launch of the “100 percent authentic” Nike-related NFTs, consumers are “already questioning whether Nike authorized StockX to sell its infringing NFT products, [and] asking how StockX received ‘the licensing to sell NFTs with [N]ike branding.’”
To the extent that the Vault NFT are “merely supposed to function as a ‘digital receipt’ for physical Nike shoe[s],” Nike claims that “there is no legitimate reason for StockX to prominently feature Nike’s trademarks on the Vault NFT and the StockX product page.” This is distinct from when consumers purchase physical offerings from the StockX marketplace, in which case a consumer “receives a paper receipt from StockX in the package,” and that receipt “prominently uses StockX’s own mark and only uses the Nike name in connection with the purchased shoe, yet somehow still manages to function as a receipt for that Nike shoe.”
(Nike also contests a provision in StockX’s terms that states the NFTs are limited in function/value to the physical shoe to which they are associated, noting that StockX also states in its terms that the NFTs “may take a variety of forms, and the holders of NFTs may be entitled to obtain certain products, benefits or engage in certain experiences, such as unlocking a prize or entry into an exclusive sale.”)
As a result of StockX’s alleged “misappropriation of Nike’s famous trademarks and goodwill to buoy its entry into the lucrative NFT and digital collectible market, [which] deprives Nike of its exclusive right to use its marks in connection with this new commercial medium,” Nike sets out claims of trademark infringement and dilution, and unfair competition, and is seeking monetary damages, as well as injunctive relief to “swiftly and permanently stop StockX from continuing to sell Vault NFTs bearing Nike’s famous marks.”
Some Initial Takeaways
A few interesting points from my initial read of the complaint (there will be more to come from me on this case): the specific rights that Nike is relying on to make its infringement and dilution claims. Nike cites a list of existing trademark rights and federally-registered trademarks in its complaint as the basis for its trademark claims, including registrations that extend to goods/services, such as physical footwear products and “retail footwear and apparel store services.” Looking beyond its existing registrations, Nike asserts that in addition to “using the asserted marks in connection with a variety of physical goods and associated services for decades,” it has also “for some time incorporated the asserted marks into its virtual products,” therefore, giving to common law trademark rights in those marks when it comes to products in the virtual world.
For example, Nike – which says that it will release a number of virtual products with RTFKT this month – claims that “in October 2019, through its SNKRS mobile application, [it] partnered with 2K Sports, makers of the NBA 2K basketball video game franchise, to offer ‘Gamer Exclusives,’ limited edition digital and physical Nike sneakers that NBA 2K20 players can unlock through gameplay.”
This goes to our previously-cited point that brands will likely be able to rely on existing rights (in physical products and retail services) in order to bring enforcement actions, and may not need to file new applications for virtual goods, even if the current trend among brands is to rush to trademark offices, such as the USPTO, to file new applications for registration for virtual goods/services.
It is worth noting, however, that Nike does point to the metaverse-specific trademark applications for registration that it filed in October “for use in connection with, inter alia, ‘[d]ownloadable virtual goods, namely computer programs featuring footwear,’ (i.e., digital sneaker NFTs) and ‘[r]etail store services featuring virtual goods, namely footwear’ (i.e., a digital sneaker NFT trading platform)” in its complaint.
Also interesting are the remedies that Nike is seeking in connection with StockX’s alleged infringement and dilution, not least of which is it quest for “an order that StockX be required to deliver to Nike for destruction any and all Vault NFTs, associated footwear, digital files … and any other items in any of their possession, custody, or control bearing Nike’s Asserted Marks, any marks substantially indistinguishable therefrom, confusingly similar marks.”
Remedies are intriguing when it comes to NFTs, as because of the immutable nature of blockchain, the digital tokens cannot be destroyed without dismantling the blockchain on which they are hosted. This means that the best outcome for a brand that is seeking to have NFTs destroyed may be to have them sent to a burn address, which still does not actually destroy them but renders them incapable of being transferred anymore. (Non-transferability is no small matter, as a sizable portion of the value of NFTs is derived from the ability of holders to resell them.)
As for what we can expect StockX to argue in response to Nike’s claims: Fair use immediately comes to mind. Given that the NFTs at play are “associated with [physical] Nike products” that StockX says that it has in its “vault” ( hence, the “Vault NFTs” name), the marketplace may attempt to claim that it is merely using Nike’s marks to refer to the actual Nike products, and not to indicate the source of the NFTs, themselves, thereby, removing the necessary infringement element of use as a trademark.
And one final thought: it will be fascinating to see how courts approach and define NFTs, and the same goes for how these relatively novel digital assets are presented by the respective parties in the growing number of lawsuits.
In one of the other early NFT cases, Hermès v. Mason Rothschild, the defendant, who created the series of MetaBikrins NFTs, has already asserted that his work is protected from trademark claims by the First Amendment. In furtherance of such a claim (and the given that the First Amendment protects non-commercial “speech”), his counsel will almost certainly argue that the NFTs are completely secondary to the “art” at issue, and serve more as a way to record ownership of the art than anything else. The same general line of thinking could potentially apply in the Nike case in some sense, as well, if StockX opts to put the physical Nike sneakers at the center of the equation, and argue that there is no infringement or dilution going on, and then frame the existence of the NFTs purely as a way to track ownership of those goods, thereby, downplaying the importance of the NFTs, themselves, and potentially some of Nike’s qualms with the situation.
A rep for StockX was not immediately available for comment.
UPDATED (Feb. 8, 2022): In a statement, StockX stated that the lawsuit “lacks merit and is based on a mischaracterization of the service StockX offers through our NFT experience. Our Vault NFTs depict and represent proof of ownership of physical goods stored in our vault that customers can trade on our platform. We undoubtedly have the right to provide our customers with this new and innovative approach to trading current culture products on StockX, and plan to vigorously defend our position. StockX Vault NFTs are not digital or virtual sneakers. We do not state or imply that our Vault NFTs are associated with, sponsored by or officially connected to any third party brand. In fact, we clearly and expressly state the opposite.”
“Because each Vault NFT is tied to a physical good already stored in the StockX vault, a buyer no longer has to wait several days before they can resell, and they do not have to pay fees associated with multiple legs of shipping and physical authentication. Just as our platform does with physical goods, NFTs provide safe and secure access for our customers to buy and sell in the digital secondary market without costs, delays and risks that can be associated with physically shipping goods upon each trade.”
The case is Nike, Inc. v. StockX LLC, 1:22-cv-00983 (SDNY).