A pair of Air Jordan 1 Retro shoes are seen before being packed to ship out of Stock X (JEFF KOWALSKY/AFP via Getty Images)
SNEAKERS & FASHION

Why Nike is Suing StockX Over NFTs

Nike is claiming trademark infringement in a case against StockX for its Vault NFTs. Here’s what that means.

The rapid rise of Web3 was bound to create a wave of novel legal questions. The most recent involves Nike and StockX, the online marketplace and sneaker reseller. Earlier this month, Nike filed a lawsuit against StockX, claiming trademark infringement for the reseller’s Vault NFTs.

This isn’t the first Web3 lawsuit we’ve seen — French fashion designer Hermes, movie production studio Miramax, and even Olive Garden have filed suits against creators whose NFTs bear their registered trademarks. Each of these cases raises a similar question about how the law intends to treat NFTs, especially with the ways in which creators and minters use them.

But in order to begin to unpack these issues, it’s important to understand what a trademark is supposed to do.

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Trademark 101

The easiest way to think about trademarks is as source identifiers of goods or services, so the consuming public knows what it is buying into. Trademarks can extend from logos and designs to words or phrases — think Super Bowl, or even Linsanity. Even vaguer concepts like colors or sounds can be trademarked if they create a link between consumers and product. Perhaps the most famous examples of each are Tiffany’s signature shade of blue and NBC’s three chimes that it plays between programs.

Because companies spend a great deal of time and money building the brands associated with their trademarks, they tend to be protective when others use those marks without permission. Clothing companies are notorious for the lengths they go to in order to protect their marks and even have teams of in-house lawyers whose job it is to find and stop infringers.

But just because you have a trademark does not mean you automatically get to restrict people from using your registered mark across all possible uses.

Trademark owners have to select which classes of goods or services they want to protect from use by others. That means Nike telling the United States Patent and Trademark Office, say, that it wants to prevent the swoosh from being used by others on shirts, hats, shoes, golf balls, etc.

It’s a simple process but important as it relates to the lawsuit with StockX.

In light of the mainstream acceptance and trade of digital goods, brands have begun to realize that there is a lot of money to be made through the sale of digital assets like NFTs, which is why we are seeing this new wave of litigation. The interesting thing about NFTs is that their value isn’t really tied to the value of an underlying asset the way in which a share of stock is tied to the value of its company.

For example, when you buy an NFT associated with a piece of digital art, you aren’t buying the underlying intellectual property, you’re effectively buying a copy that is denoted by the token. The NFT basically makes the copy a special “limited edition” copy that creates the impression of scarcity. So in most cases, the value of the NFT is really a function of market dynamics and the perceived demand for the NFT more so than any value that is tied to ownership of the original piece of art.

In other cases, NFTs come with much more than the token. They can effectively serve as coupons or even actual assets with underlying value in cases where artists or minters of NFTs actually give away the underlying intellectual property rights. Issues tend to arise when people start minting NFTs with the intellectual property of other companies, as is the case with StockX. StockX’s Vault NFTs are pictures of actual physical sneakers that StockX has in its vault, and the NFT can be redeemed or “burned” for the actual shoes pictured.

Nike’s Case

The main issue in the Nike case is that these NFTs are of Nike products that bear the word mark “Nike,” the swoosh, or other marks like the Jordan Jump Man. Nike’s argument is that these NFTs bearing the Nike marks are causing confusion with consumers and are diluting the Nike brand, given some of the negative attention the NFTs are receiving. Nike is further arguing that because it has been involved in the sale of digital branded goods, dating back to their collaboration with NBA2K to create gamer-exclusive digital apparel, consumers are likely to believe these NFTs are being sold or in some way endorsed by Nike.

The sportswear giant has also been planning for its takeover of the metaverse for a while now, which includes expanding their trademark coverage to include digital goods. Soon after expanding its trademark coverage, Nike announced the acquisition of digital art and collectible creative studio RTFKT.

Nike also cited the fact that the StockX NFTs are often trading at multiples that are much greater than the underlying asset, which to them means the NFTs aren’t merely functioning as a coupon or voucher for the pictured shoes but rather as a separate, standalone asset that derives its value from the Nike marks. However, the price at which the NFTs are trading likely says more about the current NFT market in general, as it is rampant with speculation resulting in outsized values of assets that in reality are probably not worth much at all.

At the end of the day, like most other legal disputes, this is a case about money — more specifically who has the right to make money off of digital goods bearing Nike’s marks. But the broader question is how the law treats these digital goods and what rights will extend from our physical universe to the metaverse.

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