Nike has doubled down on litigation in opposition to StockX in a heavyweight lawsuit between the largest shoe producer on the earth and the hypebeast shoe resale platform that’s now valued at $3.8 billion.
The battle started in February, when Nike filed a trademark swimsuit in opposition to StockX, after StockX introduced a program that promised to show your shoe purchases on its web site into prompt NFTs. (Nike, having not minted these NFTs itself, claimed StockX was misusing its trademark by minting NFTs from Nike sneakers.) Then final week, Nike upped the authorized ante: It added an accusation of counterfeiting on prime of its present trademark swimsuit, claiming that it bought 4 pairs of pretend Nikes from StockX.
At first look, the story could appear to be one other instance of Nike being overly protecting of its mental property. Final June, Nike sued the Brooklyn-based artwork collective MSCHF, after the group launched Devil Sneakers, which have been Nikes the corporate had bought, then crammed with a drop of Lil Nas X’s personal blood. (Nike and MSCHF settled earlier than the case went to courtroom, however many authorized students sided with MSCHF, provided that MSCHF had merely bought and modified Nike sneakers very like anybody might modify and resell a Ford Bronco.)
The brand new swimsuit is pressure-testing the connection between a retailer and a producer—and it’s unprecedented territory. “I don’t suppose we’ve seen a case like this,” says Leah Chan Grinvald, affiliate dean and professor of regulation at Suffolk College. “I feel that’s going to make it actually of curiosity to authorized students if it makes it to courtroom.”
Producers really audit for counterfeiting usually, they usually purchase their very own merchandise from retailers on a regular basis, in line with Grinvald. Nonetheless, it’s unusual for a producer to truly sue a retailer for promoting merchandise which will have been counterfeited.
“They hardly ever convey circumstances in opposition to the vendor, however on this occasion, StockX is totally different from an Amazon or eBay, in that Amazon or eBay simply tells shoppers, ‘Purchaser beware! We’re only a market!’” says Grinvald. “Whereas StockX takes that subsequent step . . . and says we’re verifying that the sneakers you’re shopping for are authentically Nike.”
Certainly, StockX doesn’t merely join a purchaser and vendor to finish a transaction and let the chips fall as they could. It’s an lively intermediary in each buy. StockX receives a pair of sneakers resold on its platform and verifies that the sneakers are genuine, even including a particular tag to mark their veracity. Taking that additional step of guaranteeing authenticity is StockX’s complete worth proposition. But it surely additionally will increase their authorized vulnerability to a counterfeiting declare.
To make issues worse for StockX, if an investigation discovered that StockX was knowingly promoting counterfeit items, it must pay triple the damages of a typical counterfeiting declare. Damages are notoriously troublesome to assign, however the prospect of tripling any potential damages could be unsettling to any defendant.
However none of that is all that reduce and dry, and StockX might win in courtroom, relying how proof and arguments are introduced. Grinvald floats one such situation the place that may occur: Maybe Nike is correct, and the sneakers are counterfeit. However what in the event that they have been such good counterfeits that they have been fully indistinguishable from the actual factor? Would StockX be held liable then? She notes how typically, a manufacturing facility will run a “third shift,” through which bootleg merchandise are produced on the identical tools, and with the identical supplies, as the unique product. They’re fully indistinguishable, they usually may go any testing StockX might be doing on them. And but . . . they’re nonetheless, technically, unauthorized Nikes.
Nike may argue such a shoe is counterfeit, however, “on the finish of the day, it was made by Nike!” says Grinvald. How a courtroom would interpret the nuance of all these particulars is a whole grey space as a result of there aren’t any excellent precedents.
The closest case was filed in 2011, when Coach sued former employee Gina Kim who, the corporate claimed, was promoting counterfeited Coach baggage on eBay. “That is half and parcel of huge corporations attempting to keep up controls over logos, merchandise, and distribution strains,” says Grinvald. However over the course of the trial, the info got here out: These have been really reputable Coach merchandise that Kim had gotten on low cost as an worker, and he or she was merely flipping them for a revenue. Maybe that was a breach of her contract, nevertheless it was not a problem of counterfeiting, Grinvald notes. The merchandise have been Coach.
In one other associated case from 2004, Tiffany sued eBay for its position in reselling counterfeit Tiffany jewellery. As a protection, eBay pointed to its massive funding in its Verified Rights Owner (VeRO) program. Mainly, eBay argued that it made massive investments to make sure corporations like Tiffany might flag fraudulent listings, whereas taking the protection that it was only a reselling platform anyway. (The argument is paying homage to how social media corporations provide a number of misinformation instruments to distance themselves from the faux information on their very own platforms at the moment!) On this case, eBay won.
After all, Nike may not really care concerning the counterfeiting of some sneakers unto itself as a lot as this lawsuit may suggest. Grinvald believes that Nike’s personal attorneys added the counterfeiting claims, which might carry out strongly in courtroom, to bolster what the corporate is admittedly upset about: StockX promoting Nike NFTs when Nike acquired an organization of its personal in December 2021 to promote NFTs of its personal. Over on Twitter, UNH Franklin Pierce College of Legislation professor Alexandra Roberts published a thread outlining the complicated house of cards for StockX on this state of affairs. To oversimplify: Even when StockX might win the argument that its NFTs don’t break trademark, if any of these NFTs are primarily based upon counterfeited Nikes, then the NFTs could be deemed counterfeits, too.
Thus far, StockX has refuted Nike’s claims, and identified that Nike’s own senior executives use its platform—however that’s not essentially a legitimate protection. Grinvald says that if she have been StockX’s inside counsel, she would advise they settle with Nike, and he or she believes that’s the more than likely approach this story ends, particularly given Nike’s virtually infinite authorized assets, and its personal repute for aggressive authorized pursuits to guard its mental property.
“It’s going to be tough for StockX to defend,” says Grinvald. “If [investigations] did in reality discover they have been counterfeit, it’ll be unhealthy for PR. And so they’re going to be extra frightened concerning the courtroom of public, client opinion, than the precept of getting it proper.”
Certainly, even when StockX have been to beat Nike in courtroom, that may solely additional remind us of Nike’s claims: That these costly sneakers you’re studiously shopping for on the aftermarket may really simply be knockoffs anyway.
Neither Nike nor StockX responded to a request for remark by press time.