NFTs and Sneakers: Why Nike and StockX Are in a Legal Fight

What’s happening

Nike sued StockX over StockX’s Vault NFTs, accusing the company of violating its trademark. Nike also said it was able to buy counterfeit sneakers on the StockX online marketplace.

Why it matters

The suit could set a legal precedent regarding what kind of NFTs can be created, and it could also put a dent in StockX’s reputation.

Nike’s seemingly friendly relationship with the online marketplace StockX appears to have come to an end. The two companies are now locked in a legal battle that started with NFTs and has escalated with accusations of fake sneakers. 

Nike said on Tuesday that it purchased fake sneakers from StockX, a popular reseller site that prides itself on its guarantee of legit sneakers.

This caused a stir among sneaker enthusiasts who use the site to buy and sell sneakers, sometimes for hundreds or even thousands of dollars, with the expectation of receiving authenticated shoes.  The accusation comes after the Jordan shoemaker sued StockX in February saying the e-tailer violated its trademark when it began selling nonfungible tokens, or NFTs, featuring Nike sneakers. Nike is seeking damages and an end to StockX selling the digital tokens.

StockX, on the other hand, says the trademark claim is baseless. Nike amended the suit this week to include the allegation about counterfeit sneakers. The legal battle has the potential to set some legal guidelines for NFTs, which currently have minimal restrictions.

NFTs have become popular in the art and collectibles scenes, whether they’re characters that are part of Bored Ape Yacht Club, or virtual sneakers sold by Nike itself. Some NFTs have fetched millions of dollars, but the overall value of NFTs has been falling in recent months.  Nike’s suit could also impact StockX’s reputation as a sneaker authenticator, possibly opening the door for rival companies like eBay and Goat.

Here’s what you need to know about the two companies and why they’re trading barbs over sneakers and NFTs. 

What’s StockX? 

StockX is an e-commerce site that mainly caters to people buying and selling sneakers. It also lets people sell other items, such as designer clothes, Pokemon trading cards and PlayStation 5 consoles, but shoes are its primary business. A report from research firm NPD earlier this year said StockX accounts for “29% of all footwear bought online.”

A key aspect of StockX’s business is its authenticity guarantee, which the company says has an accuracy rate of more than 99%. Prior to the resale site’s debut in 2016, sneaker enthusiasts often conducted transactions for rare shoes in person, at stores or conventions, or they tried eBay. Deals on eBay, however, came with risk, since there wasn’t an easy way to authenticate sneakers before buying them. eBay later instituted its own authenticity program for sneakers, in 2020.

On StockX, sellers make an account on the site and list their unworn sneakers, also referred to as deadstock, for whatever price they think the shoes are worth. That’s usually at a premium above the retail price. Each shoe listed has its own price-tracking, to show its value, similar to a stock market listing. 

When someone buys a pair of shoes, instead of sending the sneakers directly to the buyer, the seller ships the shoes to one of StockX’s authentication facilities in the US or overseas. It’s at these locations that StockX verifies the authenticity of the sneakers. Rare shoes, such as certain Nike Air Jordan 1s, can be worth thousands of dollars, but fakes can be bought from Chinese manufacturers for less than retail price. 

Verified sneakers get sent to the buyer by StockX, while those that fail authentication are sent back to the seller, and the buyer isn’t on the hook for the purchase. 

What’s StockX doing with NFTs?

StockX revealed its Vault NFT lineup back in January. While most NFTs don’t offer ownership of a physical asset, the Vault NFTs are tied to an actual shoe or other item depicted in the NFT.  When people buy a Vault NFT, say for sneakers such as Nike’s Jordan 1, they’re also buying that physical pair of shoes.

The physical sneaker remains in a vault owned by StockX until the owner of the NFT redeems it. However, the owner can also leave the sneaker in the vault and sell the NFT, meaning the shoes have a new owner. 

One of the Vault NFTs has already increased in value from £5,000 to £8,000, and StockX has created other tokens for trading cards, watches and action figures. 

Why does Nike have a problem with StockX selling NFTs?

In February, Nike filed a lawsuit against StockX over trademark infringement. The athletic apparel company said the Vault NFTs will “confuse consumers” and dilute the company’s “famous trademarks.”

The complaint, filed in the Southern District of New York, alleged that “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.” Nike began selling its own NFTs in April. Its line of virtual sneakers, called the Nike Dunk Genesis Cryptokicks, consists of 20,000 different tokens with one pair of Cryptokicks already selling for more than £130,000. 

What did Nike say about fake sneakers and StockX?

Nike amended its complaint on Tuesday, alleging that it was able to buy counterfeit sneakers on StockX that had passed StockX’s authenticity verification.

Nike said in the suit that since Dec.

2021 it purchased four fake pairs of Air Jordan 1 Retro High OGs in the black/varsity red-white colorway. This is the same shoe StockX included in its line of Vault NFTs. Nike said that because the sneakers tied to the NFTs are in a vault, it’s concerned “StockX has linked the infringing Nike-branded NFTs to counterfeit goods and sold those ‘claim tickets’ to fake shoes at heavily inflated prices to consumers who had no opportunity to inspect the shoes before reselling the NFT to another unsuspecting consumer.” 

What has StockX said about fake sneakers? 

In a March court filing, StockX said its NFTs don’t violate Nike’s trademarks, and it called the lawsuit a “baseless and misleading” attempt to interfere with the popular secondary market for its sneakers, according to a report from Reuters. 

StockX released another statement on Tuesday, following Nike’s assertion that it purchased counterfeit sneakers on the site, saying it takes “customer protection extremely seriously.”

“Nike’s latest filing is not only baseless but also is curious given that their own brand protection team has communicated confidence in our authentication program, and that hundreds of Nike employees — including current senior executives — use StockX to buy and sell products,” the company said. “This latest tactic amounts to nothing more than a panicked and desperate attempt to resuscitate its losing legal case against our innovative Vault NFT program that revolutionizes the way that consumers can buy, store, and sell collectibles safely, efficiently, and sustainably.”