The NFT hype is still fairly new, but there are already several legal disputes about them. A recent case from the USA offers a good opportunity to take a closer look at the assessment of NFTs under trademark law.
In the USA, the sports goods manufacturer Nike is currently suing the online trading platform StockX. StockX offers NFTs of various sneakers – including several Nike sneakers. Nike sees this as an infringement of its trademark rights, as its shoes and trademarks are depicted in the NFT. It was foreseeable that such forms of NFT marketing would lead to conflicts over trademark rights.
Background
On StockX, rare sneakers are offered at sometimes insane prices and the shoes are traded similarly to eBay. StockX, however, checks the goods in advance for authenticity and condition. In January, StockX launched a series of Vault NFTs. These are digital drawings of various sneakers, including the Nike dunk low, theAir jordan 4 retro, the Nike air vapormax 2019 cactus plant flea market and the Nike sb dunk low ben & jerry’s chunky dunky (see image).
Source: https://stockx.com/de-de/chunky-dunky-vault-nft
StockX assures that such a “vault” NFT can be readily exchanged by its acquirer for the associated physical pairs of shoes at some point (for an additional fee). This promise makes the StockX NFTs particularly attractive for sneaker collectors. At the same time, however, StockX also stated that the redemption process is “not currently available to NFT buyers”. One notices – there are still some ambiguities regarding what exactly StockX NFTs are supposed to securitise.
The NFT lawsuit
In the United States District Court for the Southern District of New York, Nike is suing StockX to stop the use of its trademarks and also for damages. The lawsuit is based on trademark infringements as well as infringements in connection with unfair competition. Nike is ultimately concerned with the shoes depicted with the NFTs, which bear Nike’s trademarks (e.g. the name Nike or the nike swoosh). Nike fears two things: firstly, that there is a risk of misleading the public as to where the NFTs originate and whether Nike is in any way involved in the issuance of the NFTs (e.g. as a licensing partner of StockX). Secondly, Nike sees the marketing of the sneaker NFTs as an exploitation of the reputation of their globally known brands for the purpose of competing with Nike in the NFT market.
This raises interesting questions of trademark law, albeit viewed through the lens of German and European trademark law:
With the registration of a trademark, its owner acquires the exclusive right to use the trademark for the goods/services protected thereby. If a sign similar or identical to a trade mark is then used for goods that are similar (or identical) to the goods for which the trade mark is protected, there may be a likelihood of confusion and thus a trade mark infringement. This is called an infringement of the trade mark’s function as an indication of origin. This is because the primary function of a trade mark is to guarantee the origin of the goods from a certain manufacturer to potential customers.
The question is, however, for which goods the Nike trademarks are actually used in the specific case. Probably not necessarily for shoes, because the NFT does not represent or replace a shoe. If the NFT is a separate type of goods, the Nike trademarks would have to be protected for the goods NFT or “digital goods”, but in general most trademarks are not (we do not know exactly for the Nike trademarks). In this case, it could be difficult for Nike to enforce the injunction against StockX’s use.
Moreover, the NFT is not marked with a Nike trademark, but only contains an image of a shoe. It is therefore very doubtful whether there is any distinctive use of a trademark at all. Only then can the interests of the trademark owner be affected at all.
If Nike’s trademarks are known – which is to be assumed – the advertising function of the trademark may be impaired by the NFT. However, there could be a justifying reason, namely if StockX ultimately also wants to use the token to advertise the shoe.
If the shoe depicted exists in its original form at StockX, Nike’s trademark right may be exhausted. This is because the trademark owner cannot prohibit a third party from using the trademark for goods that have been put on the domestic market under this trademark by him or with his consent.
Final thoughts
NFTs have taken many different forms, but until now they have generally been closely linked to the trade mark owner and the digital asset. Currently, they pose an interesting new challenge for trademark law. Perhaps this could be a reason for (fashion) companies to be cautious about developing their own NFTs or entering the metaverse.
Nike’s lawsuit could be the prelude to a series of legal disputes in the area of tension between NFTs, trademark rights and competition law aspects, but also copyright and design law issues. It remains to be seen whether StockX’s NFTs will survive this litigation.
Author: Olivia Wykretowicz