NFT lawsuits grow as NFTs become more popular and enter the mainstream. This article discusses 5 NFT lawsuits that you should know about. From Nike to Lil Yachty to Miramax, these NFT lawsuits impact the rights of all involved. Read on to understand what all of this means for you.
Many people are confused over what an NFT, or “nonfungible token,” actually is. The dictionary definition of an NFT is “a nonfungible token as a unique digital identifier that cannot be copied, substituted, or subdivided that is recorded in a blockchain and used to certify authenticity and ownership.” Recently, individuals and entities are filing NFT lawsuits for various reasons.
Essentially, an NFT is not the actual thing you bought. Instead, it is proof that you purchased it. For example, suppose you bought the Mona Lisa. If you bought the physical Mona Lisa, then it is your property. Therefore, you can hang it in your house or let a museum display it. But suppose you bought the Mona Lisa and did not want to hang it in your home. Instead, you want proof that you own the original Mona Lisa. This is where NFTs come in. An NFT tells the world that you are the valid owner of the Mona Lisa or another piece of artwork, song, etc.
The proof that you own something through an NFT is a blockchain. But what is a blockchain? A blockchain is a decentralized public ledger that records transactions and allows for things like NFTs and DAOs. In simpler terms, a blockchain is an official record verifying that you own something through the NFT. Think of it as a digital deed.
Of course, NFTs have monetary value, and people bring lawsuits over money. Therefore, NFT lawsuits are becoming more common. The NFT lawsuits usually challenge the NFTS over intellectual property issues.
For example, suppose you own the trademark or copyright to a song, piece of art, or movie. If another person creates an NFT in which consumers can pay to own the digital rights to your copyrighted or trademarked work, has that person violated your intellectual property rights?
Because NFTs are so new, the legal issues raised by them are just now being fleshed out and tested in the courts. This article discusses some critical NFT lawsuits currently pending in the courts.
Nike Lawsuit
Parents of teenagers may already know about a company called StockX. StockX is a resale platform that sells pricey and rare used shoes, including the Nike brand. StockX also verifies the authenticity of the shoes resold on its site. Thus, when you buy a $300 pair of used sneakers from StockX, you can trust that you are not purchasing a counterfeit.
StockX has recently gotten into the NFT marketplace and operates what it refers to as a Vault NFT, which gives customers proof that they own shoes in the StockX vault. The vault tokens are linked with a picture and the name of the corresponding sneaker a person owns. Customers can then use their NFT ownership to trade shoes on the StockX platform.
On February 3, 2022, shoe company Nike filed a lawsuit in the Southern District of New York against StockX for trademark infringement.
What does the lawsuit allege?
Although StockX isn’t an unauthorized Nike dealer, the lawsuit alleges that StockX is violating Nike’s trademark rights because it has been minting NFTs that use Nike’s trademarks. Nike alleges that StockX’s sales of these NFTs constitute trademark infringement, false designation of origin, and trademark dilution. Nike seeks to stop further sales of the NFTs, and Nike also seeks money damages.
The idea behind the trademark infringement claims is that StockX’s NFTs represent authentic sneakers. Therefore, if you buy a StockX Vault NFT, you can trade your NFT for a physical shoe. Nike argues that because you can then sell the shoe for a higher price, this amounts to trademark infringement.
What does this mean for NFTs?
Under the first sale doctrine, marketplaces can usually resell goods and display images of the goods without first obtaining permission from the intellectual property holder. So, for example, you can sell your Nike shoes, showing the Nike trademark, on eBay. This does not violate Nike’s trademark rights. So StockX argues that selling their NFTs is no different from selling the actual shoes. Nike disagrees and argues that NFTs are a wholly separate product from the shoes themselves and that sales of the NFTs violate Nike’s trademark rights by taking advantage of its branding.
Because the case has just been filed, the federal court has not yet decided on the intellectual property issues raised in the lawsuit. Nevertheless, the Nike/StockX lawsuit will likely become a critical case for NFTs and their implications for intellectual property rights.
Miramax Lawsuit
On November 16, 2021, movie company Miramax filed a lawsuit in federal court in California against movie director Quentin Tarantino and his wholly-owned corporation Visiona Romantica, Inc.
Miramax sued Tarantino and his company after announcing that he plans to auction seven “exclusive scenes” from his original screenplay for the 1994 movie Pulp Fiction in NFTs.
What does the lawsuit allege?
In the lawsuit, Miramax alleges that Tarantino had assigned to Miramax almost all intellectual property rights, including all copyrights and trademarks, in Pulp Fiction. The lawsuit alleges that Miramax gave Tarantino only limited Reserved Rights. These limited rights gave him rights only to:
- the soundtrack album,
- music publishing,
- live performance,
- print publication,
- interactive media, theatrical and television sequel and remake rights, and
- television series and spinoff rights.
According to Miramax, Tarantino’s planned sale of the NFTs constitutes a breach of contract, copyright infringement, trademark infringement, and unfair competition.
In answer to Miramax’s Complaint, Tarantino has responded that he has every right to sell portions of his original screenplay. He further alleges that his planned NFT sale does not infringe on Miramax’s intellectual property rights.
The parties are currently engaging in discovery in the Miramax lawsuit, so stay tuned.
Lil Yachty Lawsuit
In January 2022, rapper Lil Yachty filed a lawsuit in California federal court against NFT seller Opulus after Opulus advertised the “Lil Yachty NFT Collection” on its website.
What does the lawsuit allege?
Lil Yachty claims he never gave Opulus permission to sell the NFTs. Instead, he claims that Opulus and its founder Lee James Parsons have used the NFT publicity to raise more than $6 million in venture capital. Plaintiff brings claims against the defendants for trademark infringement, unfair competition, and a violation of Lil Yachty’s right of publicity. In addition, Lil Yachty has asked for money damages and injunctive relief. The defendants have responded to the lawsuit, claiming that Lil Yachty permitted them to use his name and likeness.
Because Lil Yachty has just filed the suit, the court has not ruled on the merits yet. Nonetheless, any artist should pay close attention to the outcome of this case, as it can affect future rights on name and likeness use.
Hermès Lawsuit
In January 2022, Hermès, the creator of Birkin handbags, sued an NFT company and digital artist Mason Rothschild for infringing on its trademark rights, claiming that the company’s NFTs, called MetaBurkins, are “fake Hermès products in the metaverse.”
A physical Birkin handbag can cost between $9,000 and $500,000 or even more as a luxury item. Rothschild has created fuzzy images of Birkin handbags and sold them as NFTs through the world’s largest NFT marketplace OpenSaa. The MetaBirkins NFTs have brought in around $1 million.
What does the lawsuit allege?
According to Hermès, customers could be confused and believe that the MetaBirkins NFT is a Hermès product. The lawsuit brings claims for trademark infringement, trademark dilution, and cybersquatting.
The Hermès lawsuit is essential, as it raises questions about trademark rights regarding NFTs and cryptocurrencies. Under existing trademark law, trademarks only apply to the goods or services listed on the registrations and those reasonably related to the listed goods or services. In the lawsuit, Hermès will have to show that its trademark for its leather handbags extends to mere expressive images based on the bags. Hermès will also have to show that the MetBirkin digital images are likely to confuse consumers that the photos are a Hermès product.
Dapper Labs Lawsuit
Blockchain-focused technology company Dapper Labs, Inc. created the NBA Top Shot platform. NBA Top Shot allows customers to purchase and sell NFTs associated with specific NBA video clips called “NBA Top Shot Moments.” The NBA Top Shot Moments consist of video clips of NBA game highlights. The NFTs exist on Dapper Labs’ Flow blockchain.
NBA Top Shot sells three categories of “NBA Top Shot Moments,” with prices based on the rarity of the clips. Individuals can buy and sell NBA Top Shot Moments in the secondary market, and the sales take place on the NBA platform, with Dapper Labs receiving a 5% transaction fee on transactions. Since its inception, NBA Top Shot’s sales of NFT tokens have exceeded more than $500 million.
In a class-action lawsuit filed on May 12, 2021, the plaintiffs sued Dapper Labs, Inc. and its founder and CEO Roham Gharegozlou in New York state court.
What does the lawsuit allege?
The class action alleges that the defendants violated federal securities laws by selling NFTs on NBA Top Shot. The plaintiffs in that lawsuit allege that the NFTs are “securities” within the meaning of the federal securities laws. Therefore, the Defendants were required to register them with the Securities and Exchange Commission. The defendants have since removed the case to the Southern District of New York, so it’s now in federal court.
The plaintiffs contend in the lawsuit that because the NFTs they sell are like collectibles that people buy as an investment, they qualify as securities. The plaintiffs also allege that the Defendants use the power they have over NBA Top Shot to prevent investors from withdrawing funds for extended periods. They further claim that this tactic ensured the money stayed on the platform. This, in turn, prop up the market for Moments and the overall valuation of NBA Top Shot.
While this litigation does not address an intellectual property challenge, it raises the significant issue of whether the sale of NFTs can be considered selling securities that must be registered with the SEC.
As NFTs become increasingly popular, more people file lawsuits to protect their intellectual property rights. As a rapidly developing field, all intellectual property owners should understand the precedence that cases as such are setting. In addition, these lawsuits may affect your rights.
Further, if you plan to buy NFTs, understand what you are purchasing to ensure you do not infringe on another individual’s rights.
