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LEGAL BRIEF

By Max Stul Oppenheimer, Esq.

Nike is trying to convince a court that the metaverse is a real place, where the rules of the real world (as I think of it) do not apply.

If it succeeds, it will be a revolution in thinking on a par with the introduction of the theory of relativity. Because the one thing you need to know about the metaverse is this — it is not real. The tools that create the metaverse create projections into the real world, but the metaverse itself is no more real than Pandora.

Nike is upset with Stockx, a company that brokers resale of Nike shoes, and has sued Stockx in federal court in New York. The interesting part of Nike’s complaint is the claim that Stockx is violating Nike’s trademarks.

Trademarks are symbols that identify the source of goods. They are meant to assure purchasers that the goods they are buying have been produced by a specific company, presumably because that lets consumers buy products of known quality. The fundamental rule of trademark law is that the only party allowed to use the trademark is the trademark owner. If another party produces similar goods and markets them under a trademark that is confusingly similar to that of the trademark owner, it is an infringement, and the trademark owner can get an injunction and damages.

How then, you might wonder, can eBay exist? Isn’t its marketplace made up largely of third parties selling goods made by (and bearing the trademark of) others? The answer lies in two fundamental exceptions to the main rule of trademark law.

The first exception is called the first sale rule, whereby the right of a trademark owner to prevent infringing usage terminates, as to any specific item, upon the first sale of that item. So, if you lawfully acquire a pair of Nike sneakers, you can resell that specific pair — including, of course, the Nike logo that’s on the shoes — without infringing on Nike’s trademark.

That solves part of the problem, but part of it remains. The first sale rule permits the sale of the shoes but technically it does not permit advertising them by using the Nike trademark. The right to use the Nike trademark to advertise a subsequent sale of legitimate Nike products arises under a principle called nominative fair use, which is the right to use a trademark to identify the products being sold. That should make perfect sense. If you are selling a lawfully acquired pair of Nike shoes, you should be able to call them Nike shoes, not “shoes that are made by a company that I’m not allowed to name but which rhymes with bikey.”

Stockx has done more than facilitate resale of Nike shoes. It maintains a stock of Nike shoes and has attached a nonfungible token (NFT) to each. According to Stockx’s answer to Nike’s complaint, customers can buy and sell the NFTs while the physical shoes remain in a Stockx warehouse. Stockx certifies the authenticity and condition of each pair of shoes. If someone wants actual possession of the shoes, they can pay a delivery fee, and Stockx will send the shoes and destroy the associated NFT.

Note: In fairness to Nike, its complaint alleges that Stockx is selling NFTs without actually having the shoes. That would dramatically change the analysis, but Stockx’s answer denies the allegation.

Nike owns trademarks on, for example, the word “Nike” for athletic shoes (Registration No. 0978952) and has applied for trademarks on the same mark for NFTs. It claims that when Stockx attaches an NFT to the shoes, that is an infringement of its trademarks. Moreover, in December 2021 Nike acquired RKFKT, a company that produces “digital art and collectibles.” In Nike’s view, Stockx has created a new product — the Nike shoe plus an NFT — that somehow has greater value than the shoe itself, infringing Nike’s trademark in the process.

As evidence, Nike offers the example of a pair of shoes (specifically, Nike Dunk Low – Retro White Black) originally available from Nike for $100 and then in the secondary market at an average price of $282. However, the pair is listed by Stockx as an NFT evidencing ownership of similar shoes for $809.

Part of that disparity can be explained in economic terms: if one were buying the shoes as an investment for resale, buying the NFT would avoid shipping costs, storage costs, and a second set of shipping costs to a future purchaser. There might also be value in the certification that Stockx provides as to authenticity and condition.

Whether that justifies the entire disparity in price is an open question. Nike’s view is that the difference represents value associated with the Nike trademark — value that belongs to Nike, not Stockx.

Nike’s view translates into an NFT being somehow different from a “real world” document of title. Under that view, the title to your car would have value unrelated to the existence of your car, except that the title would at least be worth the paper it’s printed on, while an NFT can’t be used to cover the lens on your smartphone during awkward moments on zoom calls.

That question makes sense only if you believe that the metaverse is real. It isn’t real any more (or less) than the world created in a Disney cartoon. Both have real-world embodiments, and those embodiments — but only those embodiments — can be protected by trademark law. Intellectual property protection is limited to things that have real-world consequences. Creation of a physical cartoon using Mickey Mouse would violate the Disney trademark (Registration No. 0247156 dating to 1928), as would broadcasting it on TV, because either action would be perceptible in the real world.

On the other hand, thinking about the Mickey Mouse character is not a trademark infringement. No less a figure than Thomas Jefferson (viewed by some as the father of U.S. intellectual property law) opined that ideas in the abstract were not protectable.

If you find that odd, try this simple thought experiment. Imagine the last time you watched a TV show. Now focus on the commercials. You saw advertisements for products that included trademarks, yet you did not need to sign any sort of licensing agreement to do so — things that go on in your mind cannot violate intellectual property rights.

Ultimately, a federal court in New York will be called on to decide whether Stockx is using Nike’s trademark to advertise Nike shoes — in which case, we can expect a boring result — or whether Stockx has somehow violated rights in a metaverse — in which case there is an exciting new world (and maybe multiple new worlds) to exploit, and prospectors should start lining up to buy metapicks and metashovels.

Feel free to apply for those metatrademarks.

Join the conversation! Your questions, comments, and feedback about this topic are always welcome in our forums!

Max Stul Oppenheimer is a tenured full professor at the University of Baltimore School of Law, where he teaches business and intellectual property law. He is a registered patent attorney licensed to practice law in Maryland and D.C. Any opinions expressed in this article are his and are not intended as legal advice.

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