In a case that could make — or muddy — legal precedent in the NFT arena, sneaker reseller StockX denied Nike’s claim that the tokenized digital images it is selling violate the athleticwear giant’s trademarks.
In a March 31 filing, StockX denied the claim, saying “StockX Vault NFTs are absolutely not [StockX’s emphasis] ‘virtual products’ or digital sneakers.”
Rather, it said, they are virtual receipts for a physical pair of sneakers in StockX’s collection.
At issue are non-fungible tokens holding an image of Nike sneakers. NFTs are unique, and thus highly collectable, cryptocurrency tokens that can hold media like an image or video. Sales exceeded $17 billion in 2021, up from $82.5 million in 2020, according to NonFungible.com
On Feb. 3, Nike sued StockX, an online reseller of collectable and valuable, limited-edition sneakers — and other products like trading cards — that issues NFT receipts with an image of the product.
Also read: Nike Suing Retailer Selling Sneaker NFTs
Nike, which has embraced NFTs, has issued tokens with its own sneakers. NFT clothing and accessories are becoming popular as a way to personalize the style of avatars used to interact in the metaverse. Some NFT items, like a Birkin Bag, have sold for more than the physical products.
A playground for infringers
As a result of the NFT craze and the expected boom surrounding metaverses at companies like Meta — renamed from Facebook to reflect the importance of the immersive, 3D virtual reality worlds — NFTs are becoming a battlefield in the intellectual property and trademark legal world.
In its suit, Nike accused StockX of issuing “unauthorized and infringing” 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.”
Beyond that, Nike framed the issue as an example of a broader problem involving the use and abuse of intellectual property in metaverses, which it called “a virtual playground for infringers to usurp the goodwill of some of the most famous trademarks in the world and use those trademarks without authorization to market their virtual products and generate ill-gotten profits.”
Nike’s not alone.
Citing a “critical mass of large companies” making trademark filings, IP attorney Josh Gerben told Forbes last month, “you’re going to see every brand that you can think of make these filings within the next 12 months.”
The thing is, StockX said in its filing, the images of sneakers depicted on the NFTs have an actual commercial utility and are thus “fair use” of the images and logos.
First of all, the Vault NFTs identify and give legal control over a collectable item — in this case a limited edition pair of sneakers — that has been examined, authenticated and then stored in its “climate-controlled, high-security vault.”
The NFT receipts, StockX notes, have not just product descriptions, but also shoe sizes, as well as buy/sell buttons and price histories — as the NFTs’ smart contracts contain an auction feature with live bidding and sale capabilities.
That convenance of ownership rights in itself represents a widely predicted but so far sparingly used aspect of NFTs, which can hold images of legal documents or use their self-executing smart contracts to actually create legal agreements that are permanently and unchangeably recorded on a blockchain.
“The Vault NFT itself has no intrinsic value,” the filing said. “It is effectively a claim ticket, or a ‘key’ to access the underlying Stored Item. Nor can the Vault NFT be traded separately, or decoupled, from ownership of the underlying Stored Item.”
In order to take possession of the physical sneakers, the NFT owner must turn it over to StockX, which destroys the digital token.
“Customers use StockX’s platform not only to sell or acquire physical products for consumption,” the company said, adding that its “recent introduction of non-fungible tokens… to track ownership of frequently traded physical products is transforming the trading experience on its marketplace by increasing efficiencies and decreasing transaction costs for buyers and sellers.”
The proof of authenticity StockX’s NFTs provide mirrors an increasingly common use of cryptocurrencies in general — notably tracing the provenance of foodstuffs and produce.