Photo via: StockX
Nike is suing StockX over StockX’s creation of NFT’s using Nike Brand sneakers as a major selling point
In early February, Nike filed a complaint against StockX, an online based “middle-man”, for the sale and distribution of a plethora of products — predominantly sneakers. StockX prides itself on being a leading online merchant for users to buy and sell 100% authenticated products. Buyers and sellers (collectively, “Users”) have access to reach collectors and everyday consumers to buy premium products — mainly sneakers — that cannot be found at first-hand retail stores such as Nike, Footlocker, and Dick’s Sporting Goods, to name a few. Users typically buy and sell on StockX for a premium price, routinely at least double the price of what the product sold for at first-hand retail stores.
Recently, StockX released a ranking of its top sneaker brands, defined by the frequency that Users traded for particular brands on its platform. Out of the top five brands, three of the top products are owned by Nike: Jordan; Nike; and Converse (collectively, “Nike Brand”). Additionally, four out of the five most traded individual sneakers were Nike Brand. In short, Nike is alleging StockX is not authorized to use Nike Brands to further StockX’s profits and products by creating and selling NFT’s of Nike Brand products — confusing consumers and impermissibly infringing on Nike’s trademarks.
Nike is the leading global brand in footwear and apparel, and it truly is not close between them and their competitors. For comparison, Nike’s total revenue — from May 2020 through May 2021 — was approximately $45 B. During that same time frame, Adidas’s total revenue was approximately $20 B. That is a difference of 125%. All of this is to say, Nike’s brand is astronomically large and Nike is consistently the premier leader in the footwear and apparel market.
StockX is a fairly new company, established in 2015, to create a secure, auction style online marketplace for Users to buy and sell sneakers. StockX fundamentally believes in the authentication of its products and ensures Users that in the event of fraudulent activity by a User, the aggrieved party will be made whole. The seller sends the product to StockX and StockX verifies the product, and if the product is not up to StockX’s standard, the item is returned to the seller and the buyer is linked to either a new seller or refunded.
StockX charges a 3% processing fee for all sales and a varying percentage (10%-8%) as a commission fee is charged to sellers. The fee is gradually decreased with higher volume usage by a seller of StockX’s marketplace.
StockX eventually parlayed the success of its online marketplace for sneakers into various other products of the same general community interest, such as apparel, electronics, trading cards, collectibles, and watches. The main appeal of StockX is still sneakers. The ability for Users to purchase and sell sneakers that are either sold out elsewhere or no longer being made by a company, such as Nike, typically means the buyers are paying a premium price and sellers are generating a premium sale for themselves. For instance:
(i) The Nike Dunk Low Retro White Black (2021) retailed for $110.00, however when sold on StockX, the sneaker typically sells for over $250.00.
(ii) The Dior x Air Jordan 1 Low (2020) (limited to 4,700 pairs) retailed for $2,000.00, however when sold on StockX, the sneaker typically sells for over $6,500.00.
(iii) The Nike LD Waffle (2021) retailed for $170.00, however when sold on StockX, the sneaker typically sells for over $230.00.
The main theme here is clear: secondary market retailers, like StockX, curate a marketplace for Users to sell highly touted goods. Nike thrives off StockX; however, StockX relies on Nike for its success. To clarify, Nike would succeed without StockX, but StockX’s marketplace creates a demand to obtain any Nike Brand sneaker immediately upon release due to product scarcity.
If a consumer misses the opportunity to buy a Nike Brand sneaker, then their chief opportunity to buy said sneaker will be on an online secondary marketplace such as StockX. However, when a consumer purchases a product on StockX, they typically are paying a premium price. As a result, anytime a Nike Brand sneaker releases, even if a consumer is unsure if they value the sneaker, often they will attempt to buy it because they know even if they do not like the sneaker, they can thereafter sell the sneaker on StockX for a premium price. So now, especially for highly anticipated Sneakers, it is almost impossible for consumers to obtain Nike Brand sneakers upon release because Users of StockX and the like will purchase it first, in bulk.
The two business do not have an adversarial relationship in this regard, and they do not compete with one another in this retail space. The issue here is, StockX is now attempting to compete with Nike in a new business space with Non-Fungible Token (NFT). The NFTs are not originated from Nike in the same way the sneakers are. Instead, StockX is creating its own NFTs of Nike sneakers and thereafter selling them for its own profit.
An underlying issue here is StockX capitalized on the emerging NFT marketplace and Nike’s failure to capitalize quick enough has caused Nike to file this suit.
To understand the situation further, it is important to acknowledge that in December of 2021, Nike acquired RTFKT, a leading brand that specializes in creating digital collectibles — case in point, assisting in creating NFTs, amongst other things, for Nike:
“This acquisition is another step that accelerates Nike’s digital transformation and allows us to serve athletes and creators at the intersection of sport, creativity, gaming and culture,” says John Donahoe, President and CEO of NIKE, Inc. “We’re acquiring a very talented team of creators with an authentic and connected brand. Our plan is to invest in the RTFKT brand, serve and grow their innovative and creative community and extend Nike’s digital footprint and capabilities.”
In connection with the acquisition of RTFKT, Nike alleges in its complaint that “on or around” January 18, 2022, Nike announced to its employees the creation of Nike Virtual Studios (“NVS”). NVS was designed to develop virtual products for Web3, metaverse, and blockchain-based experiences. Nike plans to release NFTs sometime in February 2022.
Interestingly, StockX launched its “Vault NFTs” on January 18, 2022. Vault NFT features nine NFTs and eight of the nine are Nike Brand. StockX explains the Vault NFT system saying,
“[o]wn the most popular releases digitally and start saving on fees (and closet space). Each Vault NFT is tied to the same physical item, stored in our brand new, climate-controlled, high-security vaults inside StockX facilities.”
So if you’re bullish on a shoe, consider investing in a Vault NFT. You take possession of the NFT immediately after the transaction is complete, meaning it is the fastest way to flip. And with no shipping costs, and market-leading low seller fees at a fraction of the cost, there’s a lower hurdle for profitability.
Every NFT is minted on the blockchain, offering owners the opportunity to invest in current culture, with cross-platform liquidity on the horizon. Owners may also receive exclusive access to StockX releases, promotions, and events as a result of ownership.”
To use an analogy for StockX’s Vault NFT model, think of the Vault NFT as owning a stock on a trading platform such as Robinhood. On Robinhood, when you purchase a stock, you own the right to the stock but do not physically own any proof of the stock — it is all held digitally in your Robinhood portfolio. This allows Robinhood users to buy and sell stocks efficiently without the stock ever leaving the Robinhood marketplace.
The same rings true in the Vault NFT marketplace. Users are free to buy and sell Vault NFTs and the buyer owns the right to the physical sneaker that corresponds with the Vault NFT. The owner of the Vault NFT is free to redeem it for the physical sneaker. Once a person decides to redeem the Vault NFT for the physical sneaker, the Vault NFT is removed from the StockX marketplace. StockX will hold the physical sneaker in its own warehouse until (if ever) an owner of the Vault NFT decides to redeem it for the physical sneaker.
Further, StockX features a disclaimer for its created Vault NFTs:
“[t]he purpose of Vault NFT is solely to track the ownership and transactions in connection with the associated product. The associated product is subject to StockX’s own authentication process. The Vault NFT is not affiliated or associated with, sponsored by, or officially connected to any third-party brand or any brand subsidiaries or affiliates. Any third-party brand names, use and trademarks used in a Vault NFT are all the property of the applicable third-party brand owner and are used in the Vault NFT solely to refer to the physical product to which the Vault NFT corresponds. For more information on official brand products, please visit the applicable brand’s website”
In the complaint, Nike alleges that StockX adds to the fine print of Vault NFT that when a consumer purchases a Vault NFT, they will not attempt to sell the physical sneaker associated with the Vault NFT and StockX has the right to retain and in return redeem the Vault NFT for the physical sneaker at StockX’s discretion. However, if you look to the language Nike cites on StockX’s Terms and Conditions of Use, that language is no longer present and seems to be replaced with “Termination of Vault Services.” In the Termination of Vault Service, StockX states that in the event it stops offering Vault NFT, a Vault NFT owner will be given notice and thereafter sent the coinciding sneaker that was sent to the Vault NFT owner. StockX updated its Terms and Conditions of Use on February 18, 2022.
Strangely, to add another wrinkle to the story, Nike failed to reference in its complaint a separate NFT collection they created and released on February 20, 2022 — “Ducks of a Feather.” Nike and Tinker Hatfield worked with the University of Oregon to create both a sneaker and coinciding NFT that can be redeemed for a physical special edition sneaker.
The project, developed by Hatfield and in conjunction with Division Street, a sports venture company, generated revenue through an auction for the Oregon football team and 67% of the profits will be shared amongst the football team’s athletes. Ducks of a Feather is helping student-athletes launch and obtain endorsement deals using their Name, Image, and Likeness rights.
III. Causes of Action
Nike asserts the following five causes of action:
(1) Trademark Infringement 15 U.S.C. § 1114. To establish a claim under such, a person must establish facts in support of the following elements: (i) it has a valid and legally protectable mark; (ii) it owns the mark; and (iii) the defendant’s use of the mark to identify goods or services causes a likelihood of confusion.
(2) False Designation of Origin / Unfair Competition 15 U.S.C. § 1125(a). To establish a claim under such, a person must establish facts in support of the following elements: (i) that it possesses a valid, legally protectable trademark; and (ii) that the junior user’s mark is likely to cause confusion as to the origin or sponsorship of the product at issue.
(3) Trademark Dilution 15 U.S.C. § 1125(c). To establish a claim under such, a person must establish facts in support of the following elements: (i) that it possesses a valid, legally protectable trademark; and (ii) that the junior user’s mark is likely to cause confusion as to the origin or sponsorship of the product at issue.
(4) Injury To Business Reputation and Dilution New York General Business Law § 360-1. To establish a claim under such, a person must establish facts in support of the following elements: (i) that it possesses a strong mark, one which has a distinctive quality or has acquired a secondary meaning such that the trade name has become so associated in the public’s mind with the plaintiff that it identifies goods sold by that entity as distinguished from goods sold by others; and (ii) a likelihood of dilution by either blurring or tarnishment.
(5) Common Law Trademark Infringement and Unfair Competition. To establish a claim under such, a person must establish facts in support of the following element: numerous ordinary prudent purchasers are likely to be misled or confused as to the source of the product in question because of the entrance in the marketplace of respondent’s mark.
IV. Nikes Trademarks
A. Trademarks Generally
Nike owns an abundance of trademarks, and they can be viewed below:
In addition, Nike is claiming that they own “extensive common law rights in the Asserted Marks for use in connection with Nike’s goods and services [and] Nike uses the Asserted Marks on or in connection with many of its products and services.”
B. Virtual Product Trademarks
Nike owns six trademarks to be used in the digital world, and they can be viewed below:
V. Nike’s Allegations in the Complaint
Nike’s complaint asserts numerous allegations. However, at the heart of the complaint is consumer confusion and trademark infringement.
Aside from StockX using Nike Brand for eight out of its nine Vault NFTs, Nike alleges that the NFTs themselves will cause consumer confusion. Nike asserts that its brand and corresponding trademarks are distinctive and famous — that they use strict quality control standards for the products bearing Nike Brand marks. Nike cites to developing virtual products previously through diligent planning in its collaboration with NBA 2K, a popular basketball video game where users can customize in-game avatars and wear numerous products, including Nike Brands. Nike asserts that by StockX featuring Nike Brands in its Vault NFTs, consumers will be unable to distinguish StockX’s products as separate from Nike Brand products. Nike further points to StockX using Nike trademarks and images of Nike products on paid Google promotions to advertise its Vault NFTs, as well as featuring Vault NFTs featuring Nike products on its website and social media.
In the complaint, Nike asserts,
“StockX’s Vault NFTs are not Nike products. There is no collaboration between Nike and StockX, Nike did not provide a license to StockX to use its trademarks in connection with the Vault NFTs, Nike did not create or inspect the Vault NFTs or authorize the confusing and misleading Vault NFT Terms, and Nike did not authorize StockX to make, promote, advertise, market, or sell the Vault NFTs.”
Further, Nike notes that because of StockX’s flagrant use of Nike trademarks and products in connection with Vault NFTs and StockX’s vaunt about the creation of a new project, consumers are likely to believe Nike worked with StockX to create the Vault NFTs. In return, any negative or disparaging remarks concerning the Vault NFTs are being attributed to Nike. Nike references numerous exhibits of online accounts either crediting Vault NFTs to Nike or criticizing Nike for the release of the Vault NFTs. The culmination of these allegations lead Nike to state:
“StockX has attempted to capitalize on Nike’s valuable reputation and goodwill by using Nike’s Asserted Marks and/or confusingly similar marks in a manner that is likely to cause consumers to believe that StockX’s Vault NFTs are associated with Nike, when they are not.”
Finally, upon information and belief, Nike alleges that StockX knew of Nike’s highly publicized maneuvers to enter the digital asset space and wrongful capitalized on this knowledge by creating its own NFTs of Nike Brand products.
Considering the causes of action, facts, and allegations, the court is likely to rule in favor of Nike. Nike’s argument and justification is clear: that StockX is unauthorized to use Nike Brands and infringe on Nike Brand trademarks to create its own NFTs. StockX, by using Nike Brands to launch Vault NFTs, is causing consumer confusion.
However, for the court to grant in favor of Nike, there must be bona fide evidence of consumer confusion. The court will look at StockX’s launch, website, social media post, language, consumer statements, data, and more to determine if the burden of proof is met. If Nike can produce genuine evidence proving this, they will succeed.
This case hinges on an important fact, StockX is a secondary market and it does not create original products. It will be difficult for them to persuade the court that launching a new product — Vault NFT — is within its normal course of business. StockX’s business model relies on reselling other companies’ products and consumers are not accustomed to attributing products on StockX’s marketplace to StockX. Consumers are more apt to attribute a product to the company that the product represents, in this case the Vault NFTs, to Nike.
StockX has a difficult battle ahead. Aside from Nike, StockX must be cautious of other brands such as Adidas, that recently launched its own NFT collection. If Nike triumphs in this suit, the legal precedent will be immense, and creators will need to be cautious as they launch NFTs of other brands’ products. Nevertheless, this will be a tremendous opportunity to witness legal precedent — if, of course, the parties do not settle, which is very likely.
 U.S. Polo Ass’n, Inc. v PRL USA Holdings, Inc., 800 F Supp 2d 515 [SDNY 2011], affd, 511 Fed Appx 81 [2d Cir 2013]
 Sara Designs, Inc. v A Classic Time Watch Co. Inc., 234 F Supp 3d 548 [SDNY 2017]
 Matter of Fireman’s Ass’n of State of New York v French Am. School of New York, 41 AD3d 925 [3d Dept 2007]
 https://heitnerlegal.com/wp-content/uploads/Nike-v-StockX.pdf see complaint generally.
 Id at 36.
3rd year law student and Co-President of the Buffalo Sports ands Entertainment Law Society. I enjoy writing and learning more about the intersection of business, sports, entertainment and law.