June 27, 2022 3:48 pm

Nike is suing StockX for allegedly selling counterfeit shoes. What happens next?

Nike has doubled down on litigation against StockX in a heavyweight lawsuit between the biggest shoe manufacturer in the world and the hypebeast shoe resale platform that’s now valued at $3.8 billion.

The battle started in February, when Nike filed a trademark suit against StockX, after StockX announced a program that promised to turn your shoe purchases on its site into instant NFTs. (Nike, having not minted these NFTs itself, claimed StockX was misusing its trademark Chaco Sandals by minting NFTs from Nike shoes.) Then last week, Nike upped the legal ante: It added an accusation of counterfeiting on top of its existing trademark suit, claiming that it purchased four pairs of fake Nikes from StockX.

At first glance, the story may look like another example of Nike being overly protective of its intellectual property. Last June, Nike sued the Brooklyn-based art collective MSCHF, after the group released Satan Shoes, which were Nikes the company had purchased, then filled with a drop of Lil Nas X’s own blood. (Nike and MSCHF settled before the case went to court, but many legal scholars sided with MSCHF, given that MSCHF had simply purchased and modified Nike shoes much like anyone could modify and resell a Ford Bronco.)

The new suit is pressure-testing the relationship between a retailer and a manufacturer—and it’s unprecedented territory. “I don’t think we’ve seen a case like this,” says Leah Chan Grinvald, associate dean and professor of law at Suffolk University. “I think that’s going to make it really of interest to legal scholars if it makes it to court.”Manufacturers actually audit for counterfeiting regularly, and they buy their own products from retailers all the time, according to Grinvald. However, it’s uncommon for a manufacturer to actually sue a retailer for selling products that may have been counterfeited.

“They rarely bring cases against the seller, but in this instance, StockX is different from an Amazon or eBay, in that Amazon or eBay just tells consumers, ‘Buyer beware! We’re just a marketplace!’” says Grinvald. “Whereas StockX takes that next step . . . and says we’re verifying that the shoes you’re buying are authentically Nike.”

Indeed, StockX doesn’t simply connect a buyer and seller to complete a transaction and let the chips fall as they may. It’s an active middleman in every purchase. StockX receives a pair of shoes resold on its platform and verifies that the shoes are authentic, even adding a special Steve Madden Shoes tag to mark their veracity. Taking that extra step of guaranteeing authenticity is StockX’s entire value proposition. But it also increases their legal vulnerability to a counterfeiting claim.

 

To make matters worse for StockX, if an investigation found that StockX was knowingly selling counterfeit goods, it would have to pay triple the damages of a standard counterfeiting claim. Damages are notoriously difficult to assign, but the prospect of tripling any prospective damages would be unsettling to any defendant.

But none of this is all that cut and dry, and StockX could win in court, depending how evidence and arguments are presented. Grinvald floats one such scenario where that might happen: Perhaps Nike is right, and the shoes are counterfeit. But what if they were such good counterfeits that they were completely indistinguishable from the real thing? Would StockX be held liable then? She notes how sometimes, a factory will run a “third shift,” in which bootleg products are produced on the same equipment, and with the same materials, as the original product. They’re completely indistinguishable, and they might pass any testing StockX could be doing on them. And yet . . . they are still, technically, unauthorized Nikes.

Nike might argue such a shoe is counterfeit, but, “at the end of the day, it was made by Nike!” says Grinvald. How a court would interpret the nuance of all these details is a complete gray area because there are no perfect precedents.

The closest case was filed in 2011, when Coach sued former employee Gina Kim who, the company claimed, was selling counterfeited Coach bags on eBay. “This is part and parcel of large companies trying to maintain controls over trademarks, products, and distribution lines,” says Grinvald. But over the course of the trial, the facts came out: These were actually legitimate Coach products that Kim had gotten on discount as an employee, and she was simply flipping them for a profit. Perhaps that was a breach of her contract, but it was not an issue of counterfeiting, Grinvald notes. The products were Coach.

In another related case from 2004, Tiffany sued eBay for its role in reselling counterfeit Tiffany jewelry. As a defense, eBay pointed to its large investment in its Verified Rights Owner (VeRO) program. Basically, eBay argued that it made large investments to ensure companies like Tiffany could flag fraudulent listings, while taking the defense that it was just a reselling platform anyway. (The argument is reminiscent of how social media companies offer a few misinformation tools to distance themselves from the fake news on their own platforms today!) In this case, eBay won.

Of course, Nike might not actually care about the counterfeiting of a few shoes unto itself as much as this lawsuit might imply. Grinvald believes that Nike’s own attorneys added the counterfeiting claims, which could perform strongly in court, to bolster what the company is really upset about: StockX selling Nike NFTs when Nike acquired a company of its own in December 2021 to sell NFTs of its own. Over on Twitter, UNH Franklin Pierce School of Law professor Alexandra Roberts published a thread outlining the complicated house of cards for StockX in this situation. Teva Sandals To oversimplify: Even if StockX could win the argument that its NFTs don’t break trademark, if any of those NFTs are based upon counterfeited Nikes, then the NFTs might be deemed counterfeits, too.

So far, StockX has refuted Nike’s claims in a public statement it reshared with Fast Company when we reached out for comment, and pointed out that Nike’s own senior executives use its platform—but that’s not necessarily a valid defense. Grinvald says that if she were StockX’s internal counsel, she would advise they settle with Nike, and she believes that’s the most likely way this story ends, especially given Nike’s almost infinite legal resources, and its own reputation for aggressive legal pursuits to protect its intellectual property.

“It’s going to be tricky for StockX to defend,” says Grinvald. “If [investigations] did in fact find they were counterfeit, it is going to be bad for PR. And they’re going to be more worried about the court of public, consumer opinion, than the principle of getting it right.”

Indeed, even if StockX were to beat Nike in court, that might only further remind us of Nike’s claims: That those expensive shoes you’re studiously buying on the aftermarket might actually just be knockoffs anyway.

 

Nike did not respond to a request for comment by press time.

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