Melanie Saubin, director at The Future Today Institute in New York City, predicts that by 2030 “a large proportion of people will be in the metaverse in some way”. Gartner, a research company, relaunches stating that a quarter of people will spend at least an hour a day in the metaverse by 2026 and Mark Zuckerberg expects we will all live in the metaverse in the future and leave reality behind for a virtual world of our own creation.
Whatever the future holds for us, Nike Inc. has recently proved that the metaverse can be a brand-new arena where the trademarks battle can take place. After filing its trademarks applications for virtual goods in classes 9, 35 and 41 in October, Nike has recently lodged a complaint before the US District Court for The Southern District Of New York against StockX LLC, sneaker and streetwear resale platform based in Detroit, which has freshly opened to selling electronics, videogames and, of course, NFTs in the metaverse.
As of now, the metaverse has a virtual economy which includes digital currencies and the infamous NFTs (non-fungible tokens). An NFT is essentially a digital asset that links ownership to unique physical or digital items by being securely recorded on a blockchain which ensures the asset is one-of-a-kind.
In its complaint, Nike stated that: “without Nike’s authorization or approval, StockX is ‘minting’ NFTs that prominently use Nike’s trademarks, marketing those NFTs using Nike’s goodwill, and selling those NFTs at heavily inflated prices to unsuspecting consumers who believe or are likely to believe that those ‘investible digital assets’ (as StockX calls them) are, in fact, authorized by Nike when they are not” (p. 2, § 4.), moreover, “those unsanctioned products are likely to confuse consumers, create a false association between those products and Nike, and dilute Nike’s famous trademarks” (p. 3, § 7.).
StockX has now countered in court that Vault NFTs are not virtual products or digital sneakers and that StockX customers use the platform to trade products for investment purposes. Therefore, according to StockX, the use of images of Nike sneakers in connection with StockX Vault NFTs is no different than major e-commerce retailers and marketplaces who use images and descriptions of products to sell physical sneakers, which consumers see every single day.
Whether the Court will assess the NFTs as a product per se or just as a component of the sale, we will just have to wait and see. At present, NFTs are not subject to regulation, which means there is little to no legal protection for those who create, invest or trade in them.
As most NFTs include visual artworks and/or link toward protected digital works, the protection of intangible assets through intellectual property rights has always been a hot topic. Therefore, it is necessary to ensure that the person who mints the NFT holds the necessary intellectual property rights.
In addition, when the NFT is sold, there is often a misconception as to the rights that the NFT owner holds: the buyer of an NFT may mistakenly think they own the actual good associated with the NFT. But the only person with the right to copy, distribute, alter, or publicly display the good is the creator.
The transmission of exploitation rights attached to NFTs should be regulated expressly (in practice, this is accomplished in the code of the NFT − as a smart contract −, otherwise it may be carried out in a separated Terms and Conditions agreement which should be required to purchase the NFTs).
While NFTs are not specifically regulated, legal obligations may yet be imposed by States or international bodies. In September 2020 the European Commission published a proposal to harmonise the regulatory regime in the EU for markets in crypto-assets (so called “MiCA Regulation”). In the European Commission’s proposal NFTs would be defined as crypto-assets, therefore their issuers, and the providers of related services, would overall be subject to the other obligations incumbent upon crypto-asset issuers and service providers.
In conclusion, at this stage, due to the absence of legislation, as NFTs have already took on an international dimension and may target acquirers in multiple jurisdictions, the best way to protect the consumer is to adopt a case-by-case approach.
Written by Emanuela Bianco, Partner of Saglietti Bianco, IP Lawyer fully admitted in Italy and the European Union