Nike is suing a Michigan-based resale marketplace for selling digital versions of the brand’s sneakers.
The high-profile lawsuit involving two billion-dollar companies raises larger questions about how an emerging technology known as NFTs, non-fungible tokens, use trademarks.
In early February, New York-based law firm DLA Piper filed the lawsuit against StockX, a sneaker and streetwear resale company established by Josh Luber and Quicken Loans founder Dan Gilbert. The 50-page complaint claims StockX is illegally using Nike’s trademark with its newly launched Vault NFT service.
“StockX’s new virtual products have been created, marketed, offered for sale and sold by StockX using Nike’s trademarks without Nike’s consent,” the lawsuit says.
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StockX, a marketplace where users can buy and sell products, started selling NFTs tied to real-life sneakers in mid-January.
The NFTs, which look like a digital image, act as proof of ownership of a physical product. They allow customers to trade sneakers more easily or store rare products in StockX’s climate-controlled vault, the company says.
Everything from digital art, photos, videos and music can be sold as NFTs, which reportedly exploded into a $41 billion market in 2021. Exchanged on a “blockchain,” essentially a virtual receipt of transactions, NFTs prove authenticity for virtual collectibles with the most expensive sold for $91 million.
Major brands like the NBA, Bud Light and McDonald’s have also started experimenting with ways to use the digital assets.
Enrico Schaefer, a Detroit-based Traverse Legal attorney specializing in trademark law and the internet, says legal issues are common when there’s a rush to adopt new technologies. Copyright and trademark lawsuits started trickling in the last year, like one involving Quentin Tarantino, “Pulp Fiction” and Miramax studio.
“It’s going to be a rampant problem for awhile until the awareness catches up with the technology,” Schaefer said.
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Nike’s lawyers claim StockX is “blatantly freeriding” on the back on Nike’s trademarks by selling NFTs of the brand’s products. StockX currently lists 10 pairs of sneakers for sale as Vault NFTs, eight are Nike shoes ranging from a couple hundred dollars up to $10,000.
“Those unsanctioned products are likely to confuse consumers, create a false association between those products and Nike, and dilute Nike’s famous trademarks,” the lawsuit alleges.
Nike also claims the “inflated prices” of NFTs could tarnish its brand and presented criticism from social media users who said Vault NFTs are a “scam” for Nike to make more money.
“StockX’s prominent use of Nike’s trademarks in connection with these dubious virtual products has already generated negative associations with Nike in a way that harms Nike’s reputation and the immense goodwill that Nike has amassed in its brands,” DLA Piper lawyers wrote.
Selling an NFT with another brand’s logo is a clear trademark infringement, Schaefer said. But because StockX acts as a middleman who authenticates physical sneakers, clothing, watches and handbags, it might be an exception to that rule.
“There’s a lot of gray area here because of the very unique business model of StockX,” Schaefer said.
StockX disputes the lawsuit, saying it “lacks merit” and is based on a “mischaracterization” of its service.
“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,” the company wrote in a statement last week.
Schaefer believes NFTs are here to stay and the Nike lawsuit, regardless of the outcome, could be a teachable moment that shapes how the technology is used.
“That’s where you’re hopefully going to see some education occurring and some awareness,” he said.
Nike is asking the court “swiftly and permanently” stops StockX from selling NFTs with its trademark. The corporation is also seeking damages.
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