Nike, NFTs, and the Metaverse
Over the past few years, the metaverse quickly began to become a burning topic among the worlds of tech, business, finance, and even law. A recent case in point is Hermès, who decided in January to sue a digital artist for selling unauthorized Birkin Bags NFTs in the metaverse.[1]
To get a comprehensive understanding of what the metaverse entails, it seems important to note a few definitions beforehand. First, the metaverse is a “virtual-reality space in which users can interact with a computer-generated environment and with other users.”[2] As for NFTs or “non-fungible tokens,” they transform digital works of art and other collectibles into verifiable assets that are easy to trade on the blockchain.[3] Finally, smart contracts are self-executing contracts usually part of NFTs, whose terms of the agreement between buyer and seller are directly written into lines of code alongside the NFT itself.[4] The code and the agreements contained therein exist across a distributed, decentralized blockchain network.[5] Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.[6] Yet, it is to be underlined that ownership of an NFT is distinct from ownership of the underlying asset, as an NFT owner will have no proprietary or intellectual property rights per se in the asset, unless otherwise specified in the smart contract.[7] Indeed, the ownership of an NFT does not give the holder the right to do anything with the tokenized item except the ownership of the digital asset and corresponding smart contract.[8] The acquisition of RTFKT Studios, a digital fashion company creating virtual sneakers and collectible NFTs, was recently officially announced by Nike.[9] In order to purchase RTFKT’s digital merchandise, users must have access to the blockchain and have a digital cryptocurrency wallet.[10] This firm is considered as a “leading brand that leverages cutting edge innovation to deliver next-generation collectibles that merge culture and gaming.”[11]
Nike’s Chief Executive Officer seems willing to use the metaverse as a new dimension to the brand: “This acquisition is another step that accelerates Nike’s digital transformation and allows us to serve athletes and creators at the intersection of sport, creativity, gaming and culture.” [12] Indeed, in 2021, Nike partnered with Roblox, an online gaming platform with over 50 million daily users and over $1.3 billion generated in revenue, to host Nikeland.[13] This underlines Nike’s intention to build its own metaverse world where people can interact with its brand in huge numbers. Through this platform and this new Nikeland world, Nike fans will be able to connect, create, share experiences, and compete.[14] Nike created this bespoke world, inside Roblox’s immersive 3D space, building on its goal to turn sport and play into a lifestyle.[15]
In light of the above-mentioned elements, it is important to understand that the metaverse represents a new frontier for brand owners and creators to both explore and exploit.[16] Cathy Hackl, Chief Metaverse Officer and Chief Executive Officer of the metaverse-focused consulting agency Futures Intelligence Group stated that “[e]very brand and company will need a metaverse strategy.” She considers that brands’ presence in the metaverse will ultimately become as commonplace as companies’ having websites and/or being present on social media.[17] The purely virtual and highly interactive nature of this new world puts a new highlight on the reach of copyright and trademark, further emphasizing the centrality of these intangible rights within an intangible world.[18]
With this in mind, it is to be noted that several firms are already taking steps to anticipate the arrival of this new world. For instance, brands are filing trademark applications in order to avoid their brands from being illegally reproduced in the metaverse.[19] Another, contrary concern, is that the brand’s portfolio needs to expand and include their metaverse-related goods and services.[20]
The first legal actions in this field are also starting to appear. For instance, Nike recently sued StockX, who was selling NFTs of shoes that were displaying Nike’s trademarks without Nike’s authorization.[21] The complaint stated:
“Nike did not approve of or authorize StockX’s Nike-branded Vault NFTs. Those unsanctioned products are likely to confuse consumers, create a false association between those products and Nike, and dilute Nike’s famous trademarks. Indeed, consumers are already questioning whether Nike authorized StockX to sell its infringing NFT products, asking how StockX received “the licensing to sell NFTs with Nike branding.”[22]
This matter looks rather complicated to approach from an intellectual property perspective and raises several new questions. For instance, how might the purely virtual nature of the goods impact the “likelihood of confusion” test used to assess trademark infringement? How should we assess “the hurried consumer” in a strictly digital realm? Who is the “average consumer” of these digital assets? Can brand owners rely on trademark registrations that do not strictly cover NFTs, blockchain, or digital assets to enforce their rights in the metaverse?[23] We may have to closely follow courts’ decisions to obtain answers on the subjects in the following months.
Footnotes
