NFTs are the new crypto wild west — artists and brands with big pockets are the only ones who can afford to fight back

• Nike has filed a lawsuit against StockX for selling non-fungible tokens (NFTs) with its branding without prior permission.
• Lawsuits from big wigs like Nike are piling up in the NFT ecosystem.
• The hope is that regulation will arm smaller artists, who have similarly defrauded, with ammunition to fight their own claims.

Nike, one of the biggest footwear brands in the world, is suing sneaker exchange StockX for selling non-fungible tokens (NFTs) with its branding without permission. According to the ‘Just Do It’ brand, the sale by StockX — which saw over 500 NFTs fly off the shelves — was unauthorised.

Nike is far from being the only brand getting frustrated with its trademark being used to peddle digital assets.

Without regulation or any clear guidelines in the mix, cases like this aren’t uncommon. French fashion house Hermes is caught in a legal battle with Mason Rothschild over the sale of Hermes Birkin-inspired NFTs called MetaBirkins. Quentin Tarintino, the acclaimed Hollywood director, is caught in a tug-of-war with the producers at Miramax over NFTs based on the movie Pulp Fiction.

While the value of NFT sales are rising with the largest marketplace, OpenSea, locking in sales worth $3.5 billion in January — a new all-time-high — the lawsuits are piling up as well. The inflow of brands and institutional money flowing in is suddenly raising concerns that were otherwise looked over by the NFT industry. Both show no signs of slowing down with more big names expected to butt heads over the NFT gold rush.

The revolution with a loophole

The revolution on blockchain, which was meant to create a new era of ownership where things like copyright law may not even be needed, isn’t as seamless as expected when it comes to intellectual property and trademark laws.

But, that is far from the reality. Yes, putting something on the blockchain records a time-stamped transaction but it does nothing to verify where the item originally came from prior to being on the network.

To make things more complicated, NFTs — just like cryptocurrencies — are a global concept. However the rules that govern copyright and trademark issues vary from country to country. Many fear that without any legal parameters in place to regulate this emerging class of assets, not only is fraud inevitable, but it may also lead to smaller artists being snuffed out from the bigger guns.

As things stand, only players with big pockets can afford to claim their rights. Smaller artists, meanwhile, are left in the lurch with the most common retort being, “You should’ve jumped on the bandwagon earlier.” The only silver lining that seems to present itself is that the NFT craze is likely to be a boon for lawyers who are trying to navigate the boat for their clients.

Nike’s NFT lawsuit

In its lawsuit, Nike is seeking to ‘destroy’ those NFTs, stop their sale and promotion and compensation for the monetary damages from StockX.

StockX had minted the ‘Vault’ collection of NFTs in mid-January. While these NFTs themselves could be traded online, they’d also be tied to physical products, and the buyer could take possession of them on request.

A major portion of the Vault NFT collection by StockX consisted of Nike sneakers. The marketplace called them ‘investible digital assets’, in the context of select Nike shoes shooting up in price last year.

Hypothetically, speculators could buy NFTs of shoes that are in-demand, leave them in storage at StockX’s vault, and resell them later at a higher price for the buyer to take delivery directly. Unfortunately, the product names and photos will necessarily have to use Nike’s trademarks – an action unapproved by Nike, and is claimed to affect goodwill toward Nike.

The bigger issue is that StockX’s move clashes with Nike’s own NFT plans. The brand is releasing its ‘MNLTH’ NFTs yesterday as a free airdrop initially. These are made in collaboration with RTFKT, a digital art studio which it acquired in December. While Nike prefers not to sell through third-party online marketplaces, they do have a direct presence online, for example through Nikeland, authorised as a ‘customer experience’ facility on Roblox.

NFTs are the new crypto ‘wild west’

To be fair, in most cases, the person or company who already owns a physical item’s intellectual property is the one who makes a virtual version of it — that is, minting an NFT to gain from it — such as a painting, music, photo, meme, etc.

However, many artists have found others have turned their work into an NFT with getting any kind of permission or authorisation for the sale. Until now, most such artists, including William Shatner, have been small enough that suing such an unauthorised NFT creator in a US court would be a prohibitive expense. Twitter response to smaller artists boils down to, they should have gotten into the NFT game themselves first, before anyone else could imitate them.

Annabelle Gauberti, lawyer specialising in creative industries told AFP that, “It's the wild west in terms of enforcement online. Even if lawsuits are successful, how do you go after the guy who has already bought the item or stop them being sold on secondary auctions?"

Copyright attorney Mike Dunford went so far as to say, “Copyright law is a disaster zone in this area.” Saying at least a few artists hate NFTs, New York publication Futurism notes the irony that, “much of the pushback against NFTs is coming from the artists that they were supposed to help.”

Last week’s Nike case suing StockX was simply the most recent. HitPiece was forced to suspend its music NFT marketplace, after backlash from artistes and users. Before that, trademark owner Darden Restaurants asked for the ‘Olive Gardens’ NFTs to stop trading.

Closer to home, Virender Sehwag issued repeated clarifications that he is not associated with Hashcards, which sold 2100 NFT-based digital cards based upon the likeness of many cricketers, including him.

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Coca Cola, Nike, McDonald’s and other brands that hopped on the NFT bandwagon this year