NFTs present new opportunities for businesses to engage new audiences and grow their brands. Yet, there are potential risks that trademark attorneys and business owners need to be aware of in order to protect intellectual property. Nike is suing StockX for trademark infringement, unfair competition, trademark dilution, injury to business reputation.
While NFTs were originally created to represent art, GIFs, and videos they are now used for tangible items including designer sneakers and real estate. In essence, they can be used to represent ownership of any unique asset, like a deed for an item in the digital or physical realm.
Although they’ve been around since 2014, NFTs are becoming increasingly popular. In fact, a staggering $22 billion was spent on NFTs in 2021, up from $100 million in 2020.
One business that has taken advantage of NFTs is StockX, an online marketplace where you can buy, place a bid on, or sell products like sneakers, apparel, electronics, and collectibles. In addition, StockX recently introduced Vault NFTs.
According to Stock X, “Vault NFTs are digital tokens that represent ownership of physical items. Each Vault NFT is backed by a physical item held in StockX’s custody, tied directly one to one via the blockchain. Any item in the StockX Vault is “Verified Authentic”.
This means that if you buy an edition of a Vault NFT, you are the owner of the corresponding physical good which is secured and stored in StockX’s Vault.
You can trade that NFT to someone else, which will also transfer ownership of the corresponding physical good, you can hold it for any length of time, or you can redeem the item from the StockX Vault and take possession of the actual item.
All of this allows you to invest in a current culture like never before, giving you the ability to own an item without ever taking possession of the item and without ever paying shipping fees. Plus you can sell it without having to send it to us and with fewer seller fees.”
At the time of this post, StockX includes Nike and Adidas sneakers along with sports collectible cards in its Vault Marketplace.
In Feb 2022 Nike Inc. filed suit against StockX due to the alleged unauthorized and infringing use of Nike’s famous marks in connection with StockX’s entry into the NFT market.
According to court documents, StockX has chosen to compete in the NFT market by “blatantly freeriding, almost exclusively, on the back of Nike’s famous trademarks and associated goodwill”.
Specifically, 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.
Examples of StockX’s infringing NFTs appear below.
StockX claims that its authentic Nike-branded “Vault NFTs” do no more than track ownership of a physical Nike product safely secured in its “vault.” The Vault NFT exclusively functions as a traceable digital receipt that can be traded or resold. If you purchase a StockX Vault NFT, you also have the right to exchange that NFT for the physical shoe.
Yet, the StockX website states as of February 23, 2022, that the “redemption process is not currently available,” but maybe sometime in the “near future.”
The Vault NFTs’ inflated prices and vague terms of purchase and ownership have already led to public criticism of StockX and allegations that the Vault NFTs are a scam. This could harm Nike’s reputation and the immense goodwill that Nike has amassed in its brands.
StockX’s misappropriation of Nike’s famous trademarks also deprives Nike of its exclusive right to use its marks in connection with NFTs.
Interestingly, on October 27 and 28, 2021, Nike filed applications to register its famous trademarks with the United States Patent and Trademark Office 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 addition in January 2022, Nike announced to its employees the formation of Nike Virtual Studios, a new division that will operate as an independent studio to further develop Nike’s business around virtual products and partner with its core business to deliver best-in-class Web3, metaverse, and blockchain-based experiences.
Nike has requested:
- That StockX be required to deliver to Nike for destruction any and all Vault NFTs, associated footwear, digital files, packaging, printed graphics, promotional materials, business cards, signs, labels, advertisements, flyers, circulars, 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.
- An order granting an award of damages suffered by Nike according to proof at the time of trial;
- An order that StockX account to Nike for any and all profits earned as a result of StockX’s acts in violation of Nike’s rights; and
- An award of three times the amount of compensatory damages and increased profits.
This will be an interesting case to watch play out and will be a huge loss for StockX if Nike succeeds.
Nike is suing StockX for trademark infringement, unfair competition, trademark dilution, injury to business reputation.
What can we learn from this?
- Brand owners should review their trademark protections and apply for additional trademarks if their rights don’t cover brand usage in NFTs and cryptocurrency services.
- For NFT creators, it is best practice to steer clear of utilizing any trademarks you do not own.
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