By: Annabelle Hentz
Industry giant and household name Nike, Inc. has filed a lawsuit against online sneaker retailer StockX in the U.S. District Court for the Southern District of New York. Nike is claiming trademark infringement and unfair competition based upon the unauthorized use of the Nike mark in StockX’s Vault Non-Fungible Token (“NFT”) Collection. NFTs are defined as “a unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible.” Meaning in this case, StockX utilized Nike’s mark in the creation and advertising of a digital asset without Nike’s consent.
Launched in 2016, StockX allows its customers to shop for clothing, accessories, sneakers, and more. The application guarantees users that their purchases will be real, verified goods with accompanied authentication. StockX is praised for its multi-step authentication process which “ensures that items traded on StockX conform to the product descriptions and condition standard advertised by StockX, and that the products offered for sale are what they claim to be, and are not counterfeit, defective, or used.” After a customer buys a pair of shoes from StockX, the seller ships the shoes to one of StockX’s authentication facilities, and the verified purchase (bought by StockX from the seller after verification) is then sent to the buyer by StockX. Items that fail the authentication process are sent back to the seller, removing StockX from liability.
In January 2022, StockX launched its Vault NFT collection comprised of nine NFTs. Each NFT in the vault is tied to a physical item that StockX sells. Eight of the nine Vault NFTs prominently display Nike’s marks and are associated with Nike products. Some examples of the Vault NFTs include “Jordan 1 Retro High OG Patent Bred,” “Nike Dunk Low Retro White Black,” and “KAWS Sacai Nike Blazer Low Blue.” According to the Vault NFT terms, after a consumer purchases a Vault NFT, the consumer “gains title to both the purchased Vault NFT and the Stored Item to which the NFT corresponds, and the consumer automatically makes use of StockX’s Vault Services (i.e., storage of the physical goods in StockX’s facility).” The terms further state that StockX “retains the right to unilaterally redeem a Vault NFT for so-called ‘Experiential Component,’ and can cancel or take away the NFT,” meaning the Vault Owner never receives the physical version of the shoes or can lose the opportunity to do so. Yet this provision directly conflicts with the listed benefits of the NFT beyond ownership of the physical shoe, such as “exclusive access to StockX releases, promotions, events, as a result of ownership.”
Upon notice of the StockX Vault NFT collection, Nike filed this lawsuit, stating “[w]ithout 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 argues however, that each Vault NFT is tied to a specific product, such as a pair of Nike sneakers it bought second-hand from its rightful owner, which is being sold on their marketplace. Further, StockX invokes the first sale doctrine—arguing that its use of the Nike branding and images as part of its display and sale of Vault NFTs are proper as an entity “can resell goods bearing a trademark, such as a logo or brand name, after the trademark owner has sold those items.”
Trademark infringement is governed by the United States Trademark Act (the “Lanham Act”). Under the Lanham Act, infringement has occurred when an unauthorized party has used any word, term, name, symbol, or device likely to cause confusion, or mistake, or deception as to the originally registered party. As previously stated, there is a defense to the Lanham Act under the first sale doctrine. The doctrine provides “that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display or otherwise dispose of that particular copy, notwithstanding the interests of the copyright owner.” However, there are limitations to this doctrine as well, especially in situations where the resale is likely to confuse or deceive consumers.
StockX argues “this is no different than major ecommerce retailers and marketplaces who use images and descriptions of products to sell sneakers and other goods.” While this argument is understandable, the price of the NFTs—which in some cases were inflated 1000% compared to the market price of the physical sneaker the NFT was based on—will likely negatively impact how consumers view Nike. NFTs are a newfound concept and are not yet widely understood. Confusion is already apparent on social media, as users have expressed their disbelief at the prices of what they believe to be Nike’s NFTs, when the NFTs have nothing to do with Nike at all.
Under traditional intellectual property frameworks and based on current consumer confusion as well as StockX’s unauthorized use of the Nike mark, Nike should prevail in this lawsuit. However, because there is a previous relationship between StockX and Nike, and Nike had no issue with StockX reselling their products previously, perhaps Nike should consider the potential benefits of investing in this type of digital asset creation. Had StockX received authorization, or created the NFTs alongside Nike as a promotion, this may have been an amazing branding opportunity to which both companies would reap the benefits. The future of advertising will stem from the result of this lawsuit and others that follow, as the world of NFTs and digital assets are only just beginning.
Student Bio: Annabelle Hentz is a second-year law student at Suffolk University Law School. She is a staff writer on the Journal of High Technology Law and is a member of the Executive Board of the Women’s Law Association on the Diversity, Equity, and Inclusion Committee. Annabelle received a Bachelor of Business Administration in Marketing from the University of Massachusetts’ Isenberg School of Management.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
