Introduction
Proposed amendments
Impact of new allegations
On 4 February 2022, Nike, the owner of three of five of StockX's most popular sneaker brands (Air Jordan, Nike and Converse), sued StockX in the United States District Court for the Southern District of New York (for further details, please see "Digital good v digital receipt: dispute over StockX's use of Nike trademarks in NFTs"). The original complaint primarily concerned StockX's nascent non-fungible token (NFT) programme and Vault NFT offerings, alleging that the StockX NFTs featuring Nike's brands constituted trademark infringement and dilution.
On 10 May 2022, Nike filed a motion to amend its original complaint. Amended complaints are typically filed to add additional facts, parties or causes of action, and typically receive very little fanfare. Nike's proposed amended complaint, however, adds some new allegations against StockX that have created significant buzz.
In its proposed amended complaint, Nike alleged that, since the filing of its original complaint, StockX had made changes to its advertising concerning its Vault NFT offerings, seeming to address some of the problematic language that Nike had highlighted in its original complaint. Nike's proposed amended complaint also added facts pertaining to Nike's recent entry into the NFT market.
Next, Nike's proposed amended complaint added causes of action for counterfeiting and false advertising related to StockX's marketing and promotion of its platform and, more specifically, its authentication process. Nike alleged that it had purchased four pairs of counterfeit "Nike" sneakers from StockX within a two-month period, sneakers that StockX itself had "verified authentic". According to Nike, "[a]t least one pair of those counterfeit shoes are the same style as one of the infringing Nike-branded Vault NFTs". Thus, these new allegations put more focus on StockX's core business – the resale of "100% authentic" goods.
In response, StockX issued a statement on 11 May 2022, defending its authentication process and stating that Nike's 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".
These new allegations are significant for several reasons. First, the allegations that StockX is selling products that are not 100% authentic provide a separate basis for Nike to pursue damages for false advertising and other Lanham Act violations. Second, these allegations cut to the heart of the fair use and first sale doctrine defences that StockX had raised in its answer, as these defences apply only to the sale of genuine branded products.
Last, these allegations may open the door for additional liability for StockX regarding its own customers. Indeed, a consumer class action was recently filed against StockX with allegations that closely track the allegations in Nike's proposed amended complaint.(1) The class action complaint alleged that "credible reports indicate that a significant percentage of the items sold through StockX are not '100% Verified Authentic,' but counterfeit". The class action complaint asserted a number of causes of action, including negligent misrepresentation, fraud, unjust enrichment and violations of various consumer protection statutes. But the main argument is that StockX misled consumers by representing that the products purchased and sold on the platform were 100% authentic, and that the NFTs sold on the platform "had independent, and not illusory value".
With these new allegations, the potential scope of the case has broadened significantly.
For further information on this topic please contact Justin E Pierce, Calvin R Nelson or William Lawrence at Venable LLP by telephone (+202 344 4000) or email ([email protected], [email protected] or [email protected]). The Venable LLP website can be accessed at www.venable.com.
Endnotes
(1) See Heriberto Valiente v StockX, Inc, No. 1:22-cv-21489-KMM (SD Fla 13 May 2022).