Nike -v- StockX Duel Shapes the Future of the Metaverse

Insight

Nike, Inc. has filed a federal complaint against StockX, LLC, an online resale marketplace, in the Southern District of New York, alleging that StockX manufactures and sells non-replaceable tokens (“NFTs”) that infringe Nike’s intellectual property. StockX argues that because its NFTs are inextricably linked and are intended to certify ownership of genuine physical Nike sneakers, the NFTs are non-marginal fair use and a legal exercise of the first-sale doctrine.

As one of the first documented challenges against NFTs used to certify ownership of physical goods, this case questions first impressions and may provide greater clarity on the line between infringement and fair use when NFTs are linked to physical goods. Products.

About StockX

StockX est un marché mondial en ligne qui permet à ses utilisateurs d’acheter et de vendre des «articles de la culture actuelle», notamment des baskets, des vêtements, des objets de collection, des cartes à collectionner et des accessories convoités, entre autres Products. According to the company, the StockX platform has attracted a significant number of customers who wish to acquire and trade these products solely for investment purposes and without any interest in carrying or physically taking possession of these products immediately or ever. For such Clients, StockX offers to store investment products in a climate-controlled, highly secured vault (“Stored Items”). It also uses its own multi-step authentication process to verify the authenticity of products sold on its platform.

StockX uses NFTs to track ownership of stored items held in the StockX vault. According to the company, these “Vault NFTs” represent[] and follow[] proof of ownership of the actual sneaker stored in [the] StockX safe. Consumers who purchase Vault NFTs can either retain digital possession of the Vault NFT and leave the verified physical asset in the StockX vault, or take possession of the vault physical asset at any time, in which case the Vault NFT will be removed . wallet and withdrawn from circulation. StockX claims that when a user buys a Vault NFT, they buy the underlying stored item and there is no storage for the Vault NFT itself. In addition, StockX claims that Vault NFTs cannot be traded separately or detached from ownership of the underlying stored item – it is simply a “claim ticket” or “key” to access the underlying stored item.

The disputed NFTs

The NFT Vault at issue in this case contains images of several Nike sneakers, including the Nike Dunk Low Black and White sneakers featured in the image.

Nike claims that these NFTs likely confuse consumers, create a false association between StockX and Nike NFTs, and water down Nike’s trademarks, among other related drawbacks. Additionally, Nike argues that StockX’s product hinders Nike’s success in the NFT market, citing: among other things, their recent acquisition of an NFT firm in December 2021 as evidence of its expansion in the market.

In addition, Nike disputes the argument that StockX’s NFTs have no independent value beyond the physical products to which they relate, due to a right of withdrawal listed on StockX’s website. Specifically, Nike points to the Vault NFT Terms, which state that NFT holders may be given the right “to obtain certain additional products or benefits for engaging in certain experiences, such as unlocking a reward or access and exclusive sales.” The independent value of such NFTs, if any, will be an important factual determination for the courts and may materially affect StockX’s defense against fair use.

According to Nike, StockX has already sold 600 of these NFTs, making thousands of dollars. Nike further alleges that StockX is misleading consumers by claiming that the NFTs are “100% genuine” when Nike has not authorized the sale of these NFTs.

In its response, StockX states that using images and descriptions of resale products as part of its NFT Vault “is no different from major retailers and e-commerce marketplaces that use product images and descriptions to sell sneakers and other goods, which consumers see (and are not upset by it) every day. StockX also asserts the affirmative defenses of the first sales doctrine and fair use.

The first sale doctrine is a legal principle that generally limits an intellectual property owner’s rights to make infringement claims related to products that have already been sold to a consumer. StockX claims that its actions do not constitute a trademark violation as each NFT corresponds to a specific physical Nike shoe in its rightful possession. According to established case law regarding the first-sale doctrine, StockX could resell these physical shoes without infringing Nike’s intellectual property rights, if the limited use of Nike’s intellectual property does not lead to consumer confusion. The question remains whether the first-sale doctrine allows consumers to sell virtual images of the shoe without infringing the rights of the intellectual property owner.

The fair use doctrine is a legal principle that generally allows third parties to use the trademarks of others in limited circumstances without liability. For example, StockX argues that its actions do not infringe trademark law because the images of the shoes and the descriptions of the resale products associated with the NFT Vault have been used in an authorized manner to refer to specific physical products (Nike shoes). Under common fair use nominative case law, StockX may resell such tangible footwear (ie genuine Nike footwear) using Nike’s trademarks without infringing on Nike’s intellectual property rights. among other things, use of Nike’s trademarks was in a manner and to the extent necessary to describe or reference the Nike product without causing confusion to consumers.

Whether Nike will succeed in enforcing its intellectual property rights or whether StockX will succeed in enforcing the legality of its actions remains to be seen.

Importance of the case

Given the unique set of circumstances involved, this case should shed light on the key intellectual property issues surrounding NFTs, especially when and whether NFTs relate to physical goods. As the first major law firm to purchase land in the Metaverse, ArentFox Schiff is closely following developments in this case and other key IP considerations in the Metaverse.

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