A whole new world: Nike v StockX claim over NFTs in the Metaverse

March 5, 2022

By: Aaron Hendriks

Ai Law Legal Services

Nike’s Severely Ticked Off (NFT Trademark Law)

StockX (an online marketplace primarily known for reselling trainers, streetwear, and bags https://stockx.com/ ) is being sued by Nike over the unauthorised use of the Nike trademark in their digital sneaker NFTs.

The claim has been brought in relation to StockX’s alleged unauthorized use of Nike’s intellectual property in the digital Metaverse. Whatever the outcome, it will be historic, as the metaverse is a new and developing area, with behemoth companies like Facebook rebranding itself “Meta” and chips manufacturer Nvidia focusing on the “Omniverse” – a sort of metaverse for business – believing it is set to be the next big thing in the age of digital.

Legislators will be required to apply longstanding legal principles to completely new areas.

What are NFTs?

NFTs (Non-Fungible Tokens)

are cryptographic tokens containing a coded link to a unique digital file. Similarly to cryptocurrencies, they rely on a blockchain (a digital trail which records all transactions involving the item along its journey) to maintain their integrity.

However, as the name states, they are non-fungible, meaning they cannot be exchanged for another item of the same value or characteristic. This is where they differ from cryptocurrencies such as Bitcoin, of which there are multiple clones of the same ‘coin’. It is a technology that enables one person to own an original digital image, much like a collector owns a Monet or a Picasso.

Surely a digital image could never be compared to a physical work of art, and you may think Nike bringing a claim over a digital image on a computer screen is a little petty. But on NFT trading sites like OpenSea, images like those made by the “Bored Ape Yacht Club” of cartoon gorilla’s are selling for up to $5million and more https://opensea.io/collection/boredapeyachtclub . With sums like these, expect more NFT and Metaverse related litigation, especially in the areas of Intellectual Property infringement and ownership.

An example of an Ape NFT that can attract millions of dollars on NFT trading site, OpenSea.

What has StockX attempted to do?

In mid-January, StockX announced its entry into the NFT market. Already an authenticity verifier of traded goods during their journey from seller to buyer, they aim to apply NFT technology to bridge the gap between physical items (in this case, Nike sneakers) and the digital world, with their introduction of ‘Vault’.

Vault is a platform allowing customers to trade ownership of the trainers via their linked NFTs, while StockX retain the goods on-site. Since the NFTs are traded digitally, the associated physical trainers never have to leave StockX’s holdings, lowering costs associated with conventional transporting, verifying, and shipping.

…yes you understand correctly, people are buying Nike trainers (or sneakers) but are not actually buying the physical shoe, they are trading pictures of the shoes.

This also has additional consumer benefits as the trainers are stored in a secure, climate-controlled facility, aiding preservation.

As of present, the Vault platform has launched 9 limited-edition NFT varieties, 8 of which are linked to Nike sneakers.

What is Nike’s issue?

Since Nike’s sales rely on its reputation and popularity, represented by its brand image and logo, StockX is accused of essentially ‘piggybacking’ on this to sell their own NFTs.

Considering the boom in sneaker collecting and the resale market, estimated to reach £30 billion by 2030, it is of substantial interest to Nike to protect their own share of the market.

Nike claims that the digital items have been intentionally produced to look like official Nike goods and has declared there has not been any official collaboration with StockX, thus no authorisation to use their reputation and trademark.

They have resorted to legal action, suing StockX for trademark infringement, trademark dilution and false designation of origin.

What is StockX’s response?

StockX denies the allegations stating that their Vault NFTs merely represent ownership of the goods stored at their facility and are not actual digital trainers. They also state that they do not assert or imply any association or connection with any other third-party brands.

StockX also states in its Terms that the NFTs have no additional value to that of their associated goods.

Although not certain, StockX could claim fair use under American law (Section 107 of the Copyright Act 1976), allowing it to make certain limited uses of the copyrighted material without permission, but it has not yet been applied to the digital world.

This might not be a sufficient defence though, as Nike has noted the additional services and bundles which StockX offers may go beyond statutory fair use.

This case could turn out to be a significant precedent for the development of digital trademark and copyright law. The law has not yet resolved many ambiguous areas surrounding conventional intellectual property and is now faced with the prospect of a tidal wave of digital trademark litigation as technology moves to the virtual universe.

It may be that businesses will have to rely on their own initiatives to shield themselves from unfair competition, or even learn to ferociously crack down on others seeking to associate themselves with a view to profit.

Perhaps Nike are just annoyed that they didn’t think about selling images of their shoes rather than the actual shoe first. It would certainly save on their overheads if they did. Could we start to see big brands moving into the digital metaverse and selling collectible NFTs?

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