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Nike sues Michigan market for virtual sneakers sold as NFT

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Nike is suing a Michigan-based resale market for selling digital versions of the brand’s sneakers.

The high-profile lawsuit involving two billion-dollar companies raises broader questions about how an emerging technology known as NFTs, non-fungible tokens, uses trademarks.

In early February, New York law firm DLA Piper filed a lawsuit against StockX, a sneaker and streetwear resale company founded by Josh Luber and Quicken Loans founder Dan Gilbert. The 50-page complaint claims that StockX is illegally using the Nike brand with its new Vault NFT service.

“The New StockX Virtual Goods were created, marketed, offered for sale and sold by StockX using Nike’s trademarks without Nike’s consent,” the lawsuit states.

Related: A Michigan-based online marketplace is selling sneaker NFTs. What does it mean?

StockX, a marketplace where users can buy and sell commodities, began selling NFTs linked to actual sneakers in mid-January.

NFTs, which look like a digital image, act as proof of ownership of a physical product. They make it easier for customers to swap out sneakers or store rare goods in StockX’s climate-controlled safe, the company says.

Everything from digital art, photos, videos, and music can be sold as NFT, which is believed to have exploded into a $41 billion market in 2021. Traded on a “blockchain”, essentially a receipt virtual transactions, NFTs prove the authenticity of virtual collectibles with the most expensive sold for $91 million.

Big brands like the NBA, Bud Light, and McDonald’s have also started experimenting with ways to use digital assets.

Enrico Schaefer, a Detroit-based Traverse attorney who specializes in trademark and internet law, says legal issues are common when there’s a rush to adopt new technologies. Copyright and trademark lawsuits began to flow last year, such as one involving Quentin Tarantino, “Pulp Fiction” and studio Miramax.

“It’s going to be an endemic problem for a while until awareness catches up with technology,” Schaefer said.

Related: A temporary mural will be marketed as NFT at a building demonstration near Michigan Stadium

Nike attorneys claim StockX is “blatantly freeriding” the back of Nike’s brands by selling NFTs of the brand’s products. StockX currently lists 10 pairs of sneakers for sale as Vault NFT, eight are Nike shoes ranging from a few hundred dollars to $10,000.

“These unauthorized products are likely to confuse consumers, create a false association between these products and Nike, and dilute Nike’s well-known brands,” the lawsuit alleges.

Nike also claims that the “inflated prices” of NFTs could tarnish its brand and presented criticism from social media users who said the NFT Vault is a “scam” for Nike to make more money.

“StockX’s prominent use of Nike’s trademarks in connection with these questionable virtual goods has already generated negative associations with Nike in a way that damages Nike’s reputation and the immense goodwill Nike has amassed in its marks,” the lawyers for DLA Piper wrote.

Selling an NFT with another brand’s logo is clear trademark infringement, Schaefer said. But because StockX acts as an intermediary that authenticates physical sneakers, apparel, watches, and handbags, this could be an exception to this rule.

“There are a lot of gray areas here due to StockX’s very unique business model,” Schaefer said.

StockX is challenging the lawsuit, saying it “lacks merit” and is based on a “misrepresentation” of its service.

“Our Vault NFTs describe and represent proof of ownership of physical assets stored in our vault that customers can trade on our platform. We are undoubtedly entitled to provide our clients with this new and innovative approach to trading current cultural products on StockX, and plan to vigorously defend our position,” the company wrote in a statement last week.

Schaefer believes NFTs are here to stay and that Nike’s lawsuit, regardless of the outcome, could be a teachable moment that shapes how the technology is used.

“That’s where you’re going to hopefully see some education and some awareness,” he said.

Nike is asking the court to “promptly and permanently” stop StockX from selling NFTs with its brand. The company also seeks damages.

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