Brand disputes in the NFT sphere

Nike, Inc. v. StockX LLC, 1:22-cv-00983 (United States District Court for the Southern District of New York)

StockX launched its ‘Vault NFTs’ in January 2022 to give its users a more efficient clothing resale platform. Less than one month after the launch, Nike sued StockX on multiple grounds including trade mark infringement and reputational damage.

What are Vault NFTs?

Vault NFTs are tied to physical products, so purchasers of the Vault NFT also own the physical product. The physical product remains with StockX until the NFT is redeemed. The NFT is packaged with other products as well, like exclusive access to StockX promotions and releases.

Users can resell the Vault NFT on the StockX platform instantly. They also don’t need to pay shipping costs or cover the expense of product authentication to recoup their investment. A win-win?

Nike’s complaint

As Nike products dominate the StockX marketplace, Vault NFTs linked to Nike products were a key part of the launch. Nike’s claim is based on 558 Vault NFTs which made prominent use of Nike trade marks without authorisation.

Nike claim the Vault NFTs infringed their trade mark registrations and created confusion in the market, thereby diluting and taking unfair advantage of the Nike brand. Nike also claim that the “inflated prices and murky terms” of Vault NFTs has injured its reputation.

Key issues

The Nike lawsuit may illuminate some key areas in relation to brand protection in the virtual space:

  • Virtual presence: Nike claims that its established presence in the virtual space, as shown by its acquisition of NFT creative studio RTFKT in December 2021, means consumers are more likely to falsely associate the Vault NFTs with Nike. If this is a decisive factor, will future claimants need to show an established virtual presence to succeed in brand disputes in the virtual space?
  • Classes of protection: Nike’s claim relies on trade mark registrations for both physical and virtual goods. How important will the registrations for virtual goods be in determining the outcome of the case, and if Nike succeeds will this encourage others to seek filings in the virtual space to protect their virtual brand?
  • Defences: StockX may seek to rely on the fair use defence by claiming they only use the Nike trademark to describe the goods, since the Vault NFTs are tied with physical Nike products. Will this defence succeed or will the way Vault NFTs are packaged with StockX promotions undermine it?

Brewing conflict

In November 2021, Miramax filed a lawsuit against Quentin Tarantino for attempting to auction Pulp Fiction NFTs. Then, earlier this year, as reported by BrandWrites, Hermès brought an action against Mason Rothschild in relation to the artist’s production of NFT Birkin bags.

Nike’s lawsuit is the latest dispute in this arena and the virtual NFT space is shaping up to be a new battleground for brand disputes. This clearly reflects the value companies anticipate emerging from NFTs, particularly in entertainment and retail sectors. The outcomes of these cases should be followed closely by those seeking to improve their brand protection in the virtual space.

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