Non-fungible tokens (NFTs) were the talk of the town in 2021. Twitter founder Jack Dorsey sold his first tweet as NFTs for $3.9 million, while National Basketball Association star, Stephen Curry, bought a colorful picture of a monkey. Afraid of missing out, companies of all shapes and sizes have flocked to the USPTO to file intent-to-use applications covering “downloadable virtual goods” – Nike is a good example, having already filed several applications under the NIKE word mark and design (for example, serial number US 97/096/366 and serial number US 97/095/855). He even filed a trademark infringement lawsuit against an online retail company, alleging that his marketing and sale of NFTs depicting Nike shoes violates his trademark rights.

But what exactly is an NFT? And how does this involve trademark law, if any?

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 image, video or sound clip, but it can also represent physical elements. Like fine art, NFT enthusiasts buy, hold, and sell NFTs in hopes of reaping profits. NFTs may also have other uses, such as access to exclusive content or products, or admission to an event (e.g., 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 allow users to sell their NFTs to others, there is uncertainty about the intellectual property rights associated with them. For example, if an artist hits 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?

Trademark law

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 “that a person intends in good faith to use in commerce” to “identify and distinguish its wares, including a unique product, from those made or sold by others and to indicate the source of the wares, 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 way on the goods or their containers or on any displays associated therewith or on any labels or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on the papers associated with the goods or their sale” and the goods “are sold or carried in trade” (ID). A mark is considered to be in use in commerce of 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 United States” (ID).

A person is liable for trademark infringement if he, “in connection with goods or services, or any container of goods”, uses in commerce “any word, term, name, symbol or device, or any combination thereof it, or any false designation of origin, false or misleading description of a fact or false or misleading representation of a fact” which is “likely to cause confusion, to cause an error or to deceive as to the affiliation , that person’s connection or association with another person, or as to the origin, sponsorship, or endorsement of another person’s goods, services, or business activities” (15 USC §1125(a) (1)). Courts analyzing likelihood of confusion use a variety of non-exhaustive factors such as:

  • brand strength;

  • the similarities of the marks at issue;

  • the crossing of commercial marketing circuits;

  • the sophistication of potential buyers;

  • the intention to pass; and

  • real confusion.

The existence of a likelihood of confusion depends on the weighting of the factors by the investigator.

A common defense to (or a factor considered under) trademark infringement, is nominative fair use, which allows one person to use another person’s trademark to describe goods or services. It appears commonly in comparative advertising, for example by saying: “My product outperforms [X company’s] product’. This also happens when a company advertises that its products are compatible with those of another company or that its services cover repairs of 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 against trademark infringement, nominative fair use is a concept created by the courts. Some commentators have taken the view that this defense or concept is not available against trademarks that are indisputable under US 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. The second part of this article will dissect the subject next week.

This article originally appeared in World Trademark Review Weekly on May 12, 2022 and is reprinted with permission.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.