As StockX and Nike Inc. square off in court, the shifting dimensions of business competition — IRL and in the still-nascent metaverse — are starting to come into focus.
StockX responded this week to Nike’s claims against its use of NFTs tied to hot sneakers and its authentication service, the latest volley in their ongoing battle. Nike in May claimed that StockX sells counterfeit sneakers and that they had purchased four fake sneakers on the platform from December 2021 to January 2022.
The resale giant said the timing of Nike’s latest allegations are “suspicious” and contradictory to their past dealings together and that Nike has sought out StockX to collaborate on authentication efforts. “Since inception, StockX authenticators have inspected more than 30,000,000 products and prevented $60 million in counterfeit sneakers from reaching buyers,” StockX said, and noted that the company has invested millions to fight counterfeiting.
While it’s Nike and StockX in court, the outcome of the case could reach beyond the two companies by setting important precedent in the emerging world of metaverse-related law.
“I think NFTs are revolutionizing fashion, but what we’re seeing now is the clash between artists rights and brand rights and intellectual properties and applying existing laws to this technology,” said Francesca Witzburg, partner at Loza & Loza.
Fashion has seen companies battle with artists over intellectual property like Hermès with artist Mason Rothschild, creator of the MetaBirkins NFTs. But while Rothschild is an artist creating virtual bags as artwork, StockX is a global resale marketplace producing NFTs “to more efficiently transact in authentic goods,” the company attests.
Susan Scafidi, founder and director of Fashion Law Institute at Fordham Law School, said: “Brands as large as Nike with such recognized trademarks have been subject to appropriation art for a long time. Creators have leaned into the parody defense. Two to five years ago, most would say we don’t want to appear anti-art, but NFTs are infinitely available.…It’s not artist versus company so Nike doesn’t need to be concerned about a reputation hit stepping on a little guy. Very few companies have the size and clout of Nike, but this is a clash of titans.”
Similarly, Chanel sued The RealReal for trademark infringement, counterfeiting, false advertising and unfair competition, but that’s for physical goods compared to a digital marker.
“Even if you’re not selling, intellectual property law is about unauthorized reproduction even if it’s advertising,” Scafidi said. “StockX could be in a worse position by selling NFTs, but even creating them is using Nike for advertising and that’s where Nike doesn’t want to be.”
But Scafidi added that the two companies have more to gain together — “a rising tide lifts all boats,” she said. “When Nike is desirable on StockX and prices are rising then that’s good for Nike.”
This suit, however, draws hard lines of what companies are allowed to do by law.
The industry had seen a version of this before in the early dot-com boom. Both lawyers referred to a case between Tiffany & Co. and eBay where the former claimed eBay was liable for trademark infringement and counterfeiting. The latter would eventually win that case.
“This is similar to what we saw when eBay came out and brands freaked out, but eBay didn’t shut down and we didn’t stop using the internet,” said Witzburg. “This will be integrated into our life and we’ll create policies and procedures and rules for people to use the blockchain.
The saga between Nike and StockX began in February 2022. Nike sued StockX after it launched its Vault feature, which creates a virtual token tied to a specific set of sneakers, including Nike’s, that StockX keeps in storage.
Nike claimed that Vault encroaches on their trademark and creates confusion in the marketplace.
StockX responded saying that Vault NFTs have “no intrinsic value” and operate as “a claim ticket” showing authenticity. “It is effectively a claim ticket, or a ‘key’ to access the underlying stored item,” the company said. “Nor can the Vault NFT be traded separately, or decoupled from ownership of the underlying stored item….The actual product of value is the underlying stored item, and there is no mark-up for the actual Vault NFT.”
Blockchain authentication is a new frontier that could give companies a leg up in the fight against counterfeiting. But NFTs are not required for authenticity. For instance, Canada-based post-authentication platform Arthentix uses augmented reality and blockchain technology to confirm the validity of products and is working with retailers to do so. However, using NFTs could make authentication faster and more streamlined.
Witzburg sees this case as important as it’s one of the first applications of NFTs to verify validity. “Bad facts could create bad law and if this prevents NFTs from authenticating goods then we’re missing out on an incredible opportunity to use Blockchain technology and NFTs to authenticate goods.”
StockX’s Vault NFTs are associated with not only sneakers but trading cards, watches and action figures and brands such as Nike, Adidas, Puma and New Balance. So why aren’t Nike’s rivals speaking up? “One thing we often see in law is other brands watching,” Scafidi said. “Much enforcement happens behind the scenes. If one brand wins big then other brands win. They don’t have to worry about being in the headline for this than for their latest collaboration.”
Nike did not respond to a WWD query.