Nike's entry into the space of non-fungible tokens (NFTs) was considered by the community a big step toward the adoption of the digital economy. The Oregon-based multinational sports company has already signed several partnerships with thematic companies, joined the metaverse craze, and even filed trademarks for virtual goods.

However, as with any big company that is trying to keep up with the times, Nike couldn’t get around legal battles, which brings us to the Nike v StockX case.

In January, StockX, an online reseller, launched Vault NFTs, a collection of NFTs based on the images of Nike shoes. The reseller positioned its initiative as an experience where customers “can invest in NFTs tied to physical products and trade them instantly with lower fees.”

StockX Vault NFT collection. Source: stockx.com
StockX Vault NFT collection. Source: stockx.com

The Detroit-based company even noted that the buyer of a StockX Vault NFT will also “own the corresponding physical item including the opportunity to take possession of it at any time.”

The campaign didn’t last long though as in early February Nike sued StockX for selling images of its sneakers. The company said in the lawsuit that it did not approve of or authorize StockX’s NFTs. The document particularly reads:

Nike did not approve of or authorize StockX’s Nike-branded Vault NFTs.

Nike added that StockX's unsanctioned NFTs infringed its trademarks as the digital collectibles could have confused consumers and "create a false association between those products and Nike" as the reseller promised buyers they would be able to redeem the NFTs for physical versions of the shoes "in the near future."

So what’s the matter?

Well, at this point everything would be pretty much understandable except for one single moment — Nike’s request for an order to destroy these NFTs:

An order that StockX be required to deliver to Nike for destruction any and all Vault NFTs, associated footwear, digital files, packaging, printed graphics, promotional materials, business cards, signs, labels, advertisements, flyers, circulars, and any other items in any of their possession, custody, or control bearing Nike’s Asserted Marks, any marks substantially indistinguishable therefrom, confusingly similar marks.

That very request changed the whole lawsuit drastically as it may raise new legal questions.

It took StockX a month to backfire against Nike, saying that the digital collectibles violated no legitimate right of Nike or any of the manufacturers of the underlying goods. The Detroit-based company also raised the legitimacy of Nike’s demands:

Nike’s claims lack merit, disregard settled doctrines of trademark law, including the doctrines of the first sale and nominative fair use, and show a fundamental misunderstanding of the various functions NFTs can serve.

The problem here is that:

  1. Yes, you can’t bring back NFTs you sold via decentralized networks (e.g. Ethereum) and simply “destroy” them in a normal way.
  2. But, selling images protected by copyright laws may indeed bring you into trouble. Seriously, there’s even a law that allows companies to destroy items that infringe their IP rights.

This means that the best outcome in the legal battle for StockX so far is to send NFTs to a burn address, writes the Fashion Law Blog. Although this method does not destroy the tokens, it makes them incapable of being transferred anytime to anyone.

However, it is yet to be seen if the judge sides with Nike in this case. But it is worthy to mention that this is far from the first time when the NFT market members face legal hurdles.

Read also: One in three NFTs ends up as dead collection: Nansen

For example, Larva Labs, the company that made the CryptoPunks collection, didn’t attach IP rights to its NFTs. Instead, the company was using the other form of protection called the NFT License, which means that the owners could use the NFTs but for "personal, non-commercial use." That legal formalities eventually led to IP disputes, which, in turn, resulted in the sale of CryptoPunks and Meebits to Yuga Labs, the company behind the Bored Ape Yacht Club collection.

Yuga Labs didn't elaborate on the price of the deal but said that it's working with legal teams to "draft the new terms and conditions for both collections, and expect to share these with the community soon."