Tread Lightly: Nike Trademark Lawsuit Raises NFT QuestionsMarch 14, 2022

If you have read Brandon Clark’s January 25th “Copyright Ownership, Transfers, and NFTs” article (and if you haven’t, you should!), you will know that the growth of NFTs, or “Non-Fungible Tokens,” has brought with it a whole host of questions regarding intellectual property. Frequently, these questions center around copyright law. However, as demonstrated by a recent lawsuit filed by Nike, there are also significant questions in the context of trademark law.

As Brandon explained, “NFTs are digital files with a unique identity that is verified on a blockchain. . . . In theory, NFTs can represent almost any real or intangible property, including artwork, music, videos, collectibles, trading cards, or real estate. Ultimately an NFT is the digital version of a certificate of authenticity, embodied in the blockchain.”

Last month, StockX, an online retailer that allows users to buy and sell collectible items such as sneakers, launched a new NFT program. Unlike many online marketplaces, StockX acts as an intermediary for sales through its platform, receiving the items and verifying their authenticity before any transaction is completed. With its NFT program, StockX allows users to buy NFTs of corresponding “real-life” sneakers. According to StockX, the NFT serves to certify ownership of the sneakers in lieu of possession of the actual product itself (which is stored by StockX). StockX claims owners of the NFT can then exchange their NFT for the actual sneakers or trade them as digital goods at any time.

On February 3rd, Nike sued StockX in the Southern District of New York, alleging trademark infringement, dilution, false designation of origin, and unfair competition. The basis of Nike’s claims centers around the fact that many of StockX’s NFTs are linked with the name and picture of Nike sneakers. In its Complaint, Nikes states: “Without Nike’s authorization or approval, StockX is ‘minting’ NFTs that prominently use 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 when they are not.”

StockX has responded by stating: “The lawsuit filed against StockX 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. StockX Vault NFTs are not digital or virtual sneakers. . . . 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.”

From a trademark perspective, this dispute raises some interesting questions. Traditionally, online marketplaces can resell products without the trademark holder’s permission under the “first sale doctrine.” StockX is taking the position that this is exactly what it is doing, just with NFTs standing in for the physical products. However, Nike claims that these NFTs are a separate product entirely using its branding. Accordingly, a critical question in this case, and in the context of trademarks and NFTs generally, is whether StockX’s use of NFTs is an extension of its normal reselling process, equating to a digital receipt of ownership as it contends, or whether the NFTs are products in their own right.

In an apparent attempt to support its position, StockX added the following disclaimer to its site after Nike filed its Complaint:

“The purpose of Vault NFT is solely to track the ownership and transactions in connection with the associated product. The associated product is subject to StockX’s own authentication process. The Vault NFT is not affiliated or associated with, sponsored by, or officially connected to any third-party brand or any brand subsidiaries or affiliates. Any third-party brand names, use and trademarks used in a Vault NFT are all the property of the applicable third-party brand owner and are used in the Vault NFT solely to refer to the physical product to which the Vault NFT corresponds. For more information on official brand products, please visit the applicable brand’s website.”

The full Complaint is available here.

Nicholas J. Krob is an Associate Attorney in the Trademark, Licensing, and Litigation Practice Groups at McKee, Voorhees & Sease. For additional information, please visit www.ipmvs.com or contact Nicholas directly via email at nicholas.krob@ipmvs.com.