NON-FUNGIBLE TOKENS AND TRADEMARK INFRINGEMENT: WHERE
DOES THE LAW STAND?
In Nike v. StockX, LLC, Nike filed a trademark
infringement lawsuit against StockX, LLC, an online resale sneaker
retailer, in February 2022 in the U.S. District Court for the
Southern District of New York. This case is an important one to
follow because it will likely shape the course of how intellectual
property law will apply to non-fungible tokens (NFTs).
The infringement landed on Nike’s radar when StockX launched
Vault NFT which is a collection of digital tokens whereby
StockX’s customers can purchase a Vault NFT which is tied to a
StockX sneaker. Many of the sneakers offered by StockX are Nike
sneakers. The buying, selling and trading of rare sneakers has been
a popular fad for many collectors for decades. Acquiring a Vault
NFT allows customers to purchase, trade, and sell rare sneakers
more easily without taking physical possession of the shoe. Once
the customer is ready to take physical possession of the sneaker,
they simply redeem their Vault NFT online, and the sneaker tied to
the NFT is shipped directly to the customer’s address. Nike
took issue with this process although the company itself allows
resellers to authenticate and re-sell their shoes all the time. In
fact, according to StockX’s answer to the complaint, many
senior executives of Nike purchase shoes through StockX’s
website often.
Nike’s position in the case is that the Vault NFTs make use
of Nike’s trademarks and that StockX is capitalizing off
Nike’s goodwill which is misleading customers into paying
“heavily inflated prices” for their sneakers. The Vault
NFTs in question depict Nike sneakers and, Nike’s trademarks on
those sneakers, without Nike’s permission. StockX contends that
this is fair use of Nike’s trademarks, no different than
e-commerce stores using images and descriptions of products that
are sold online. StockX’s entire position revolves around its
argument that NFTs are not virtual products or digital sneakers
because, in this case, they are tied to a physical good that has
already been authenticated by StockX.
The district court will be tasked with determining if this is an
actionable trademark infringement case. The U.S. Court of Appeals
for the Second Circuit applies the “Rogers test” in
determining when the use of a trademark in artistic work is
actionable which provides that such uses are only actionable if the
mark has no “artistic relevance” to the underlying work,
or explicitly misleads as to the source or content of the work
(see Rogers v. Grimaldi). For many who are
interested in minting their own NFTs, or defending the use of their
trademarks in NFTs, this ruling could have broad implications on
the application of the Lanham Act to the NFT space. The case is
currently in the discovery phase and is one worth keeping an eye on
as the case proceeds.
MSCHF CONTINUES THE MISCHIEF
McNees’ IP team has been following the Nike v. MSCHF
case which involved a trademark infringement action by Nike against
MSCHF for their controversial remake of a Nike shoe, in
collaboration with the rapper Lil Nas X. Nike distanced themselves
from MSCHF’s modified sneaker, known as Satan Shoes.
As it turns out, MSCHF Production Studio hasn’t given up on
its shoe remake collaborations with famous artists. Vans, Inc.
filed a trademark and trade dress infringement lawsuit against
MSCHF in Vans, Inc. v. MSCHF Prod. Studio, Inc. for its
use of Vans’ “jazz stripe” trademark,
“Flying-V” mark, “OFF THE WALL” mark, waffle
sole mark, and Vans’ footbed logo on MSCHF’s “Wavy
Baby” shoe which was made in collaboration with the rapper
Tyga.
In the Nike v. MSCHF case, the Satan Shoes were Nike Air Mac 97
shoes which MSCHF attached satanic symbols to but otherwise
retained the Nike branding intact. In the Vans case, MSCHF seems to
be attempting to avoid the direct use Vans trademarks by altering
the Vans trademarks prominently featured on the shoes. MSCHF argued
that while the shoe is reminiscent of Vans’ Old Skool shoes,
its distortions of the shoe design, and its trademarks, made the
Wavy Baby shoes sufficiently distinct from Vans’ Old Skool
shoes. MSCHF also argued that its creation of these shoes is
protected by the First Amendment as a parodic or artistic
expression of Vans’ trademarks and trade dress.
The U.S. District Court for the Eastern District of New York was
tasked with assessing whether the differences in the shoes were
distinct enough so as to not create consumer confusion, and whether
MSCHF’s First Amendment argument had any merit. The district
court ultimately granted Vans’ motion of a temporary
restraining order and a preliminary injunction on the basis that
the striking visual similarities between the shoes, and their
respective packaging, were likely to cause consumer confusion. The
district court re-emphasized that two marks need not be identical,
but rather only similar for there to be a likelihood of consumer
confusion under the Lanham Act and in applying the “Polaroid
Factors for trademark infringement” (see Polaroid Corp. v.
Polarad Electronics Corp). Basically, the court determined
that consumers would still think that Vans endorsed the Wavy Baby
shoes because it was still recognizable as a Vans shoe. The
district court rejected MSCHF’s First Amendment argument
because their alleged parody was not original despite MSCHF using
their own branding and distorting the original marks, and because
the court was not satisfied that the Wavy Baby shoes and packaging
conveyed a satirical message.
Here, it appears that MSCHF has attempted to get away with
“mischief” two years in a row. It was ultimately
unsuccessful at doing so even though it altered the Vans trademarks
and trade dress in an attempt to transform the product into its own
distinct branding. It is important to remember that trademarks and
trade dress need not be identical to constitute trademark
infringement. They only need to be similar enough to cause
consumers to confuse the source of goods or services or mistakenly
believe that the use of the marks is endorsed by the mark owner.
Altering another’s marks, in an attempt to create your own,
presents significant risks and will not likely lend itself to a
fair use defense, particularly if the use of the altered marks is a
commercial use.
THE FIRST AMENDMENT TRUMPS THE LANHAM ACT IN EXPRESSIVE
TRADEMARKS
In 2018, Elster applied to register the mark “TRUMP
TOO SMALL,” for t-shirts, clothing, and other merchandise.
Elster argued that the “TRUMP TOO SMALL” mark was an
expressive mark which aimed to convey “that some features of
President Trump and his policies are diminutive.” A U.S.
Patent and Trademark Office (UPSTO) trademark examiner refused this
trademark application, concluding that the mark was not registrable
citing section 2(c) of the Lanham Act which bars registration of a
trademark that “consists of or comprises a name… identifying
a particular living individual” without the individual’s
written consent. The trademark examiner further argued that the
First Amendment was not infringed by this refusal because
registration bars in the Lanham Act are not restrictions on speech,
and even if they are, such restrictions are permissible. Section
2(f) of the Lanham Act was also cited against the “TRUMP TOO
SMALL” mark which bars registrations of trademarks which
“falsely suggest a connection with persons, living or
dead.” Elster appealed the examiner’s decision to the
USPTO Trademark Trial and Appeal Board (TTAB) which affirmed the
examiner’s decision to refuse the registration and noted that
it did not have authority to determine the constitutionality of
section 2(c) of the Lanham Act.
This landed in the U.S. Court of Appeals for the Federal Circuit
when Elster further appealed this case, arguing that the
registration refusal was an unconstitutional restriction on
political speech in violation of the First Amendment. The court
noted in its opinion, In Re: Elster, that the main issue
in this case was not whether Elster is free to communicate his
message without the benefit of a trademark registration, but rather
whether a section 2(c) refusal can “legally disadvantage the
speech at issue here.” In lock step with recent U.S. Supreme
Court decisions granting broader First Amendment rights to
trademark applicants, the Federal Circuit Court opinion reversed
the TTAB’s refusal and held that this section 2(c) refusal was
a violation of the First Amendment as applied because the trademark
registration was for protected, controversial political speech
regarding a public figure, President Donald J. Trump. The court
further found that such speech is always garnered protection and
that refusing such applications under section 2(c), just because
President Trump’s name was included in the trademark
application, could “chill speech anywhere from the internet to
the grocery store.” Furthermore, the court found that First
Amendment protection is not lost on the basis that the speech is
commercial in nature.
This case is a major win for trademark applicants and owners
because it recognizes that trademarks are not merely an indicator
of source, but also a mode of expression entitled to First
Amendment protection when intended to convey an expressive message.
Decisions such as this one provide additional guidance on the
“registrability” of expressive trademarks that might
invoke the applicant’s First Amendment rights.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
