Last week, global sports brand Nike announced it is taking online sneaker marketplace StockX to US Federal Court over claims it sold Nike-branded NFTs without its permission. According to a report in Reuters, Nike said StockX’s ‘Vault’ NFTs infringe on its trademark rights and are likely to confuse customers as to whether or not they are buying official Nike digital products. Five hundred of these NFTs have been sold. The issue, however, is that the NFTs purchased through StockX are
X are just tokens representing a physical pair of sneakers – something StockX is licensed to sell.
Customers buy a unique, digital token which represents a real-world product kept safe by StockX until the buyer decides to ‘trade’ their token for the real deal, or resell the token on to a new owner.
“StockX is walking a very fine line by selling Nike-branded NFTs linked to the physical version, which is being stored away for safekeeping,” Independent Fashion Advisory Board founder Saskia Fairfull told Inside Retail.
“They might be willing to take the risk, as these sneakers aren’t directly from Nike, and the website outlines the NFT is used to ‘track’ the ownership and transactions of the associated product.
“However, Nike submitted trademark applications in November 2021 to sell virtual goods under the Nike logo. While it will take some months to process, this is a bullish move by StockX to get in on the NFT hype before Nike.”
The court of public opinion
Given the US$22bn nascent NFT market, the case between Nike and StockX is likely to be important in setting a precedent, as brands gain a better understanding of the opportunities in the upcoming metaverse.
According to NFT expert and educator Amy Stroud, most brands still don’t currently understand the NFT space.
“They’re starting to bring in consultants, but this means they are still months behind [those that are already moving on the market],” Stroud told Inside Retail.
“Brands that are embracing NFTs, either by producing their own, or working with creators using the brands’ base IP, are doing much better in the court of public opinion.”
Stroud added that StockX’s brand-based NFTs could in fact be protected under copyright law under the guise of parody. Parody is protected under fair use in copyright law, as it requires an original work to make its point and cannot stand alone.
Whether StockX’s digital goods are positioned to make a commentary or criticism of the originals is less clear.
The Metaverse cometh
Beyond simply being tied to a physical product, NFTs are also intrinsically tied to the metaverse – a vaguely defined digital and virtual reality being pushed as the next “big thing”. However, according to Fairfull, fundamental to the concept of the metaverse is its accessibility and decentralised nature: traits that don’t play well with exclusivity.
“Nike’s trademark applications are the first step in trying to control how their digital goods are used online,” Fairfull said.
“However, the space is vastly unexplored, especially from a legal standpoint and conglomerates such as Nike won’t be able to control the whole supply chain.”
There are also financial reasons beyond branding why Nike might want to take control of the sale and resale of NFTs bearing its products’ likeness, or tokens which transfer ownership of a physical item to a new owner.
Eugene Leung, founder of fashion brand Injury (which recently launched its own range of NFTs), and brand director Dan Tse told Inside Retail that one of the key ingredients to the NFT boom is that sales and resales of a token will continue providing royalties to its initial owner.
“NFTs are very transparent, and once everything is minted, all the information is stored on the blockchain,” Leung and Tse said.
“[For this reason] it’s essential to include the creators, artists, and in this case brands, in the blockchain [from the beginning].”
The situation between Nike and StockX is but one part of a larger issue in the NFT community – with many creators finding their work stolen, uploaded and sold as NFTs without their permission, and with no proceeds going to them.
And according to SneakersNews, the NFT sneaker tokens Nike is suing over are selling for approximately $500 more than their purely physical counterpart.
As it stands, Nike doesn’t get a cut of sales of its products on sites like StockX, which facilitates peer-to-peer secondhand sales of luxury sneakers, and the sale of StockX’s ‘Vault’ NFTs is currently no different.
“Metaverse and Web3 are on the horizon, and Nike suing StockX is just the start of many more lawsuits to come,” Fairfull said.
“While billion-dollar-companies continue adding to their pie, crafty nimble players are coming from all angles to break down the walls and distribute the takings equitably.”