While not repeating explanations of what NFTs are, there are at least two areas worth mentioning from a trademark issue. One of these is certainly the growing popularity of trademark applications that use NFT-related terminology when stating goods and services and how they should be correctly classified. The second issue, which has now arisen in practice, is potential trademark infringement due to the use of someone else’s brand in the form of an NFT.
On the issue of trademark applications – the hype around NFTs also has an impact on IPR granting authorities. As of January 2020, there were no trademark applications containing the term NFT in the USPTO (USA), while exactly one year later the term was mentioned in dozens of applications every day. Naturally, these include the major global brands such as Victoria Secret, McDonald’s, Nike and others, which apparently respond more to certain marketing or PR trends rather than to legal necessity. Meanwhile, the applications concerned not only NFTs, but also terms that have recently been in vogue, such as metaverse, virtual goods or virtual services.
Similarly, the EUIPO has observed a significant increase in NFT trademark applications over the past two years, with
- 1,277 NFT trademark applications in 2021, and
- 1,157 NFT trademark applications in 2022
Questions about the correct classification of the term NFT as goods or services will inevitably be raised, given the volume of applications. In June 2022, the EUIPO published a statement on its approach to the classification of trademark applications containing the term NFT. The EUIPO stated that class nine of the twelfth edition of the Nice Classification would contain the concept of downloadable digital files authenticated by non-fungible tokens. Importantly, the concept of non-fungible tokens itself cannot be accepted, as EUIPO always requires the type of digital object authenticated by the NFT to be specified. This is because EUIPO makes a distinction, and rightly so, between the NFT and the item it “authenticates” – an NFT is a kind of “front cover” for a particular digital item.
In light of the nature of an NFT – which “authenticates” a particular digital object, situations can be considered where the use of another’s brand in the form of an NFT by a third party would constitute trademark infringement. Current laws (Polish or EU) adequately address a situation of this type, because from a trademark infringement point of view, the decisive issue is the use of a particular mark for specific goods and services in trade. There may therefore be cases where a third party uses another’s brand as an NFT on the Internet (for obvious reasons, NFTs can only be used in the virtual world). Whether infringement has occurred will naturally depend on the goods or services used, or possibly whether there are grounds for considering a trademark with a reputation as infringed. When considered in this way, interpretation of the applicable laws with regard to the use of a mark in NFT form does not present particular problems.
In the meantime, a notable case of potential infringement related to an NFT arose in practice. It will come as no surprise that the case has been ongoing since February 2022 in the United States, as that is mainly where, at the moment, some legal cases regarding NFTs have been brought. In the case, StockX – a popular online shoe store, launched the Vault NFT series in January 2022. The idea behind it was that an NFT was linked to a specific footwear product, in this case NIKE shoes. As limited edition footwear is generally resold by a number of buyers until the final customer is found, linking an NFT to a specific item meant firstly that the items could be authenticated and secondly that the physical footwear could be retained in the StockX warehouse until the ultimate buyer claimed it.
Thus StockX customers each “resold” only the NFT associated with the footwear in question, and not the physical goods. The item was therefore traded much faster than with the conventional method. This situation led NIKE to file a claim against StockX for NIKE trademark infringement, saying that using the NIKE trademark in the form of an NFT could be misleading to consumers. Interestingly, in the trademark infringement claims, NIKE included the allegations that StockX sold counterfeit products, which is strange because before the dispute arose, NIKE itself recommended the authentication procedures used on that site and its anti-counterfeit policies. Naturally, StockX denies NIKE’s claims.
Assuming that StockX sells genuine NIKE products and not counterfeit products, the question is whether the website had the right to use the NIKE trademark to generate an NFT and then allow the website’s customers to “trade” that NFT. StockX has stated that in this case the NFT only serves as a “virtual receipt” for a specific product, while StockX itself does not allow trading in “digital goods” that are somehow separated from the physical goods. However, because the physical product is held in the StockX warehouse until required by the final buyer, the NFT can be sold repeatedly during this time, which in NIKE’s view is grounds for concluding that the NFT is somehow a separate product, and not a “virtual receipt”. Therefore, the primary question to be decided in court is what an NFT actually is, and then whether using the NIKE trademark in this way can constitute trademark infringement. All of this assumes, of course, that StockX didn’t have counterfeit footwear on the site; if this were the case, the dispute would turn on entirely different issues. In light of this factual background and the essence of an NFT, NIKE’s claim that an NFT is a product separate from the physical goods seems too extreme.
When the problem described above is assessed under Polish law or EU law, the question of exhaustion of the rights associated with the trademark must be addressed. Provided that StockX had for sale items of NIKE shoes which could effectively be demonstrated to have been marketed for the first time by the trademark holder or with their consent, the right conferred by the trademark was exhausted in relation to the particular elements of NIKE footwear. This raises the question of whether StockX had the right to generate an NFT using the NIKE trademark, due to exhaustion of the right conferred by the trademark, and associate this NFT with each individual pair of shoes. The exception that the trademark owner can object to trademark-related activities is quite broad – according to Polish law and EU regulations, provisions on consumption of the rights related to the trademark do not apply when this is supported by reasonable grounds for the trademark owner to oppose further distribution of the product, in particular when the condition of the product changes or deteriorates after it has been placed on the market. Owners of trademarks with reputations use this exception relatively often, saying that certain conduct with respect to the mark (such as distribution method, advertising, etc.) infringes the reputation of the trademark in question. On the basis of the above, it is of course unclear whether the use of an NFT with the NIKE trademark falls under this exception.
While unfortunately none of the concerns expressed above are properly resolved, at the moment we can at least consider whether the use of an NFT with a registered trademark associated with a specific product is a clear violation of a trademark, or whether it may fall under during the consummation of rights linked to the trademark.
