Nike sues retail platform for NFT in potentially precedent-setting case – Trademark

Nike’s lawsuit against online retail platform StockX offers many food for thought for rights holders and practitioners considering getting involved in non-fungible tokens (NFTs) (see part one of this article for an overview of NFTs and associated trademark law).

On February 3, 2022, Nike filed a lawsuit in federal district court for the Southern District of New York, alleging that StockX infringed on Nike’s trademarks by:

StockX operates an online retail platform selling sneakers, apparel and electronics. It recently launched an NFT offering called StockX Vault NFTs, which allows buyers to secure ownership of an NFT, as well as the physical product represented in it.

Nike NFT offered for sale on StockX website

On the back of the NFT, StockX includes the following text

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StockX disputes that its NFT Vault violates Nike’s trademark rights, arguing that NFTs displaying the Nike logo simply follow ownership of a physical Nike product stored securely in StockX’s Vault (answer p3, case number 1:22- cv-00983). Additionally, StockX advises buyers that “[a]All names, usages and trademarks of Nike used in an NFT Vault are the property of Nike.”

In other words, StockX invokes the fair name-use defense. In his view, the use of Nike sneaker images and Nike product descriptions “is no different from major retailers and online marketplaces that use product images and descriptions to sell physical sneakers and other goods” (Answer, pp7-8).

According to Nike, however, the Nike-branded StockX NFT Vaults do more than just track ownership; they also allow buyers to trade, collect and access a range of other StockX services, such as releases, promotions and events (complaint, paragraph 5). Nike also claims that StockX boasts that Nike products generate more sales than any other brand on its platform (ID Paragraph 3).

In the Court of Appeals for the Second Circuit, in which the Southern District of New York sits, judges will consider the following factors in addition to traditional risk of confusion factors when determining whether a nominative fair use claim is legitimate:

  • Whether use of plaintiff’s mark is necessary to describe both plaintiff’s and defendant’s product or service.

  • If the defendant uses the plaintiff’s mark only to the extent necessary to identify the product or service.

  • Whether the defendant has done anything which, in conjunction with the mark, suggests sponsorship or endorsement by the plaintiff/rights holder.

In other words: whether the defendant’s conduct or language reflects the true or correct relationship between the goods or services of the plaintiff and the defendant (Certification Consortium Inc v Security University LLC823 F3d 153, 168, 2nd Circuit 2016).

As part of the second factor, the courts analyze whether the alleged infringer “made[ped] beyond the line in a risk of confusion by using the senior user’s mark too prominently or too often, in terms of size, emphasis or repetition” (ID ). Under the third, courts must consider confusion in the context of “affiliation, sponsorship, or endorsement by the trademark owner” (ID ).

Nike will likely argue that StockX has crossed the line of likelihood of confusion by prominently displaying its trademarks, offering Nike-branded NFTs for sale, and marketing those NFTs as “100% genuine.” It will also likely argue that NFTs create affiliation, sponsorship, or endorsement by Nike where none exists.

StockX will likely retaliate by pointing to all the other brands on its platform and arguing that it only uses Nike brands to describe products available on its retail website.

Whether nominative fair dealing ultimately applies raises important questions of fact. If this case reaches the summary judgment stage, NFT enthusiasts and their trademark attorneys will be eager to see how the court will rule.

This article originally appeared in World Trademark Review Weekly on May 19, 2022 and is reprinted with permission.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

Darryl A. Chapin