The age-old philosophical debate over the nature of simulacra has found new life in new forums: the metaverse, where big brands have been recreating their products in virtual form, and the courts, where those same brands are now clashing with other business entities over the realities, virtual and other, of the non-fungible token (NFT).
On Feb. 3, Nike filed a federal lawsuit, in the Southern District of New York, against StockX for “unauthorized and infringing use of Nike’s famous marks in connection with StockX’s entry into the Non-Fungible Token market.” The filing raises almost semiotic questions about what constitutes a product, a service, a receipt, intellectual property and, indeed, the very concept of retail sales.
At issue is StockX’s recently introduced Vault NFTs, which, as the company itself says, “connect coveted physical products,” such as Nike sneakers, “with investable digital assets.” Customers can “own 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.” Customers “take possession of the NFT immediately after the transaction is complete,” and can thereby, according to StockX, eliminate shipping costs, reduce seller fees and make it a purchased asset easy to flip on the market – because the flipping is done digitally, the NFT-connected product remaining in the vault even as it changes hands. The seller’s NFT is “burned” and a new NFT minted, for the buyer, on the Ethereum blockchain.
Nike’s primary objection concerns the unauthorized use of its logo and the effect that such use may have on the minds of the buying public. “Novel product offerings, burgeoning technologies, and gold rush markets tend to create opportunities for third parties to capitalize on the goodwill of reputable brands and create confusion in the marketplace,” Nike argues. And StockX, it alleges, is capitalizing on Nike in particular. “Recognizing firsthand the immense value of Nike’s brands, StockX has chosen to compete in the NFT market not by taking the time to develop its own intellectual property rights, but rather by blatantly freeriding, almost exclusively, on the back of Nike’s famous trademarks and associated goodwill.” Moreover, the suit continues, StockX is leading consumers to believe that what StockX calls its “investible digital assets” are “authorized by Nike when they are not.”
Another objection has to do with the control over branded products. “Nike has no say in how many Vault NFTs bearing its trademarks are released, where the Vault NFTs are released and traded, when the Vault NFTs are released, how the Vault NFTs are released, traded, or redeemed, and at what price the Vault NFTs are sold.”
Nike is claiming in addition that StockX has reserved the right not to hold up its end of the bargain and that such action could reflect badly on Nike’s brand. “StockX claims that Vault NFT owners may ‘redeem’ the NFT and take possession of the shoes (for an additional fee),” but “it also states that ‘the redemption process is not currently available’ to NFT owners” and that it may “unilaterally redeem a Vault NFT for a so-called ‘Experiential Component,’ and take away the NFT,” depriving the Vault NFT owner of the shoes connected with the NFT.
A curious allegation, concerning retail and supply, appears at paragraph 57: “To date, upon information and belief, StockX has sold 558 individual Nike-branded Vault NFTs. Some of the Vault NFTs associated with Nike products are editions of 1, others are editions of 100, and some are as many as editions of 250. Given that StockX is not an authorized Nike retailer, to the extent corresponding physical Nike shoes exist at StockX’s ‘vault’ facility, it is not clear where or how StockX acquired that many pairs of Nike shoes.”
Other, related legal tests underway
On Jan. 14, the French luxury brand Hermès filed a similar suit, also in the Southern District of New York, against the artist Mason Rothschild, who has reportedly made many thousands of dollars selling NFTs that draw on the image and trademark of the Hermès Birkin handbag.
“Defendant,” the suit reads, “has openly revealed his METABIRKINS business plan. He seeks to make his fortune by swapping out Hermès’ ‘real life’ rights for ‘virtual rights.’ As he has explained, Defendant is trying to ‘create the same kind of illusion that [the Birkin] has in real life as a digital commodity.’”
Rothschild lives in Los Angeles and, according to a widely published analysis by Eric Randolph of the AFP, believes that he is operating under the protection of the First Amendment to the U.S. Constitution, which protects among other things the freedom of speech. In this connection, Randolph cites Annabelle Gauberti of the law firm of Crefovi, headquartered in London and Paris. Gauberti says that the “fair use” doctrine, which permits artists and others to comment on or parody copyrighted material (on YouTube, for example), generally holds up in court in the U.S. and the U.K. In this case, however, “it’s hard to see on the face of it what message he is trying to convey other than that he wants to make a lot of money, so it’s going to be a lot of work for his legal team.”
Are NFTs something new under the sun?
In 1917, infamously, the artist Marcel Duchamp submitted a urinal to the Society of Independent Artists for exhibition, under the title Fountain, in New York City. Duchamp later authorized the creation of 16 replicas. People still debate whether the urinals are art, but that they are assets is undeniable. One was sold at an auction at Sotheby’s in New York in 1999 for $1,762,500.
Similarly, comparisons have been made in the context of the Hermès v. Rothschild case with Andy Warhol’s paintings of Campbell’s Soup cans. There is a ready counter-argument: Warhol never sought to enter the soup business.
Nike has been making stronger moves than Hermès in the digital realm. It makes a point of noting in its lawsuit that in December, as we then reported, it acquired RTFKT, a producer of digital assets, with headquarters in London. In other words, Nike and StockX, though different in the physical world, have similar plans in the digital world.
Blockchain promises to be a fruitful area not just for philosophy but also for litigation.