NFTs, or non-fungible tokens, are a little like digital trading cards. Purchasers get exclusive rights to a digital file, backed by the same blockchain technology that underlies digital currencies like Bitcoin. They can be recreated, yet they are unique, and because their ownership can be transferred, their creation, trade, and use are raising new questions about trademark infringement and intellectual property in the Metaverse.
There are many reasons why the IP and infringement are problematic in The Metaverse. By definition, The Metaverse is really a community that uses certain technologies including virtual reality, augmented reality, gaming applications, decentralized social media platforms, and blockchain currencies, and they are constantly being upgraded or changing. Where a trade dress or infringement issue may arise might be a mute point, very quickly. NFTs are one of the currencies in The Metaverse and brands looking to reach these audiences are adapting their IP to The Metaverse for profit. When resellers of brands look to make profit in NFTs, challenges arise. These legal cases are quickly setting precedents and challenging trademark and copyright law as we know it.
NFTs: A Plague on Fashion Houses, or Profitable?
Fashion houses have embraced NFTs as another revenue stream. NFTs allow brands to cash in on their designs in new ways and reach new audiences. Fashion houses like Gucci already have harnessed the appeal, with Gucci’s Ghost NFT selling for $3,600.
Nike says No to StockX NFTs
However, enterprises have started selling NFTs that use third parties’ brands, raising legal questions about the rights of third parties to use intellectual property in this way. Nike vs StockX is a good example. Nike filed a trademark infringement claim in Manhattan federal court against StockX, a minter of sneaker NFTs. Nike contends that by selling Nike NFTs, StockX is selling and trading Nike’s trademarked material without authorization or approval. Nike seeks to block further NFT sales and obtain damages. It is a good old-fashioned fashioned trademark fight that started in the Metaverse–but moved to federal court.
Where Does Art End and Fair Use Begin in the Metaverse?
StockX is expected to claim fair use and First Amendment protections for artists, which are common defenses in recent cases, according to Trace Schmeltz, co-chair of the Fintech Practice Group at law firm Barnes & Thornburg. Defendants like StockX can argue that each NFT is an artist’s interpretation of an item, like a Campbell’s Soup label from Andy Warhol. Similarly, each pair of Nike shoes and their likeness are not exclusively Nike’s after a certain period of time.
Nike, on the other hand, asserted in its claim that, “[g]iven Nike’s longstanding use in this space, StockX’s unauthorized and unapproved branding of Vault NFTs with Nike trademarks is all the more likely to confuse consumers, create a false association between the parties, jeopardize the capacity of Nike’s famous marks to identify its own digital goods in the metaverse and beyond, and harm Nike’s reputation through an association with inferior digital products,”
How Can We Measure Trademark and Trade Dress Infringement in NFTs?
Although no survey has yet been introduced in this young lawsuit, a number of surveys could come into play as these types of cases continue to grow. Likelihood of confusion surveys will likely play a role, and surveys measuring consumer perception and behavior in the metaverse may also be relevant. NFTs in certain creative arenas are copies of trademarked intellectual property; what is the likelihood of confusion? Would reasonable consumers know that their NFT came from a third party, rather than being minted by a creator directly?
Fashion houses seeking to protect their brands may be interested in the evidence that likelihood of confusion surveys can provide. The experience so far suggests that these cases are likely to continue growing, and we will likely see new precedents and standards set, as jurists try to make decisions at the speed of culture. If you are interested in a consumer survey to prove your case in litigation–or protect your brand from advertising-related litigation to start with–contact us today.