Non-fungible tokens (NFTs) were the talk of 2021. Twitter’s founder Jack Dorsey sold his first tweet as an NFT for $3.9 million, while National Basketball Association star Stephen Curry purchased a colorful picture of an ape. In fear of missing out, companies of all shapes and sizes flocked to the USPTO to file intent-to-use applications covering ‘downloadable virtual goods’ – Nike is a good example of this, having already filed multiple applications under the NIKE word mark and design (eg, US Serial Number 97/096/366 and US Serial Number 97/095/855). It has even filed a lawsuit for trademark infringement against an online retail company, alleging that its marketing and offering for sale NFTs depicting Nike shoes violates its trademark rights.
But what exactly is an NFT? And how does it implicate trademark law, if at all?
What is an NFT?
An NFT is a unique compilation of code that is stored on a blockchain. The code is often linked to a corresponding picture, video or sound clip, but it can represent physical items as well. Like fine art, NFT enthusiasts buy, hold and sell NFTs in hopes of reaping profits. NFTs can have other uses too, such as providing access to exclusive content or products, or admission to an event, (eg, a concert or trade show). The blockchain on which NFTs are stored provides a verifiable chain of custody for a physical or digital object. So if two people claim to own the same NFT, the blockchain will identify the rightful owner. Although NFTs can be used to verify a chain of custody and to allow users to sell their NFTs to other people, there is uncertainty over the IP rights associated with them. For example, if an artist mints an NFT with the Nike swoosh logo and then sells it for $1 million, does Nike have any recourse? What if someone sells an NFT of a Nike shoe, and by owning the NFT, a consumer has access to a physical Nike shoe?
In the United States, trademark law is governed by the Lanham Act of 1946 (15 USC §1051 et seq). This defines a trademark as “any word, name, symbol, or device, or any combination thereof” that is either “used by a person” or “which a person has a bona fide intention to use in commerce” to “identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown” (15 USC §1127).
A mark is considered to be in use in commerce on goods if it is “placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale” and the goods “are sold or transported in commerce” (Id). A mark is considered to be in use in commerce on services if it is used or displayed “in the sale or advertising of services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States” (Id).
A person is liable for trademark infringement if they, “in connection with any goods or services, or any container for goods,” use in commerce “any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact” that is “likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person” (15 USC §1125(a)(1)). Courts analyzing the likelihood of confusion employ a variety of non-exhaustive factors such as:
- The strength of the mark;
- The similarities of the marks in question;
- The crossover in marketing trade channels;
- The sophistication of likely purchasers;
- The intent to pass off; and
- Actual confusion.
Whether a likelihood of confusion exists depends on a fact finder’s weighing of the factors.
A common defense to (or factor considered under) trademark infringement, is nominative fair use, which allows a person to use another person’s trademark in describing goods or services. It commonly arises in comparative advertising, for example saying: ‘My product outperforms [X company’s] product.’ It also arises where a company advertises its goods as being compatible with another company’s, or its services covering repairs for another company’s product, for example: ‘my phone case works with an iPhone’ or ‘my company can repair [X company’s] computers.’ Unlike other defenses to trademark infringement, nominative fair use is a court-created concept. Some commentators have opined that this defense or concept is unavailable against marks that are incontestable under U.S. trademark law (6 McCarthy on Trademarks and Unfair Competition Section 31:156.50, 5th edition).
Nike put the above statutory and court-created principles to the test in February 2022, when it filed a trademark infringement lawsuit against online retail platform, StockX. Part two of this article will dissect the matter next week.
This article originally appeared in World Trademark Review Weekly on May 12, 2022 and is reprinted with permission.