In Web3’s Wild West, Offence or Defence?

The gloves are off in the legal fight between Nike and StockX.

This week, the sneaker giant attacked the resale marketplace’s core promise to customers that it only sells brand new, authentic products, alleging in a request to amend a previously filed lawsuit that it obtained four pairs of counterfeit Nikes on StockX. StockX responded with a statement saying Nike’s own brand protection team has expressed confidence in its authentication and that many Nike employees, executives included, buy and sell on StockX.

But the real battle between the companies isn’t about physical fakes. It’s about Nike’s efforts to protect its IP in the digital world. The target of its original lawsuit, filed in February, is StockX’s sneaker NFTs, which Nike claims infringe on its trademarks. StockX says the tokens are not virtual goods but digital listings used to track ownership of physical sneakers that are stored by the platform but can be bought and sold as part of its new Vault NFT programme.

Nonetheless, Nike didn’t take kindly to another party creating NFTs with its trademarks, and it isn’t alone. In January, luxury brand Hermès sued NFT creator Mason Rothschild over a line of digital assets he called “MetaBirkins” after the company’s famous Birkin bags.

It’s understandable that brands want to protect themselves as the popularity of digital products and the associated IP risk grows. Analysts see virtual goods as a lucrative opportunity for fashion companies, and yet these same goods are easy to reproduce.

But as brand managers gear up for the web3 revolution, the best defence is likely to be a strong offence where brands move to take control of the space rather than just shutting others out. If there’s an instructive tale for fashion companies worried about their IP in the new world of digital goods, it’s the rise of mp3s and file sharing in the late 1990s.

When Napster appeared in 1999, the peer-to-peer application enabled users to share music on a scale far beyond what was possible with analog mix tapes and bootlegs. This posed a serious threat to the music industry, prompting both the Recording Industry Association of America and artists like heavy metal band Metallica to take Napster to court.

Legally, it was hard for Napster to argue it should be allowed to go on letting users share copyrighted work for free. It lost, and today the company no longer exists. But that didn’t stop the rise of digital music.

The analogy isn’t perfect, and it’s still far from clear whether web3 will be as disruptive to fashion as digital downloads and streaming were to music. But it’s worth noting that the winners in the shift to digital music weren’t entities that tried to slow change but those that seized on it, taking an active role in shaping the market. Today, those names include Apple and Spotify, which both offer Metallica’s music to their subscribers.

If digital goods follow a similar trajectory, fashion brands eager to defend their IP would do well to take the offensive and find ways to capitalise on the new opportunities offered by web3, before others beat them to it. Brands including LVMH’s Louis Vuitton and Kering’s Gucci and Balenciaga have tested the space, but perhaps the best example of a brand playing offence is the same brand that doubled down on its StockX suit this week: Nike.

Last year, the company acquired RTFKT, which started out creating virtual sneakers based on classic Nike silhouettes and has grown to become one of the biggest names in the world of NFTs. Nike’s plans for RTFKT aren’t yet totally clear; the companies only just released their first digital sneaker together, the Nike Dunk Genesis CryptoKicks. But Benoit Pagotto, one of RTFKT’s co-founders, told BoF in a recent interview that if Nike is going to be a player in web3 and the metaverse, it needs a team that can build in these spaces natively.

The future of NFTs is still taking shape. The frenzied growth of last year has dissipated and, at present, the broader crypto market that fuelled interest in NFTs is in freefall. Still, many believe there’s long-term potential in digital assets as consumers spend more time online and in virtual spaces.

Nike and others have an opportunity to start shaping that future now, and while legal action certainly has a place in its arsenal, ultimately its best defence against threats to its IP isn’t to shut down any NFTs based on its products but to make shoppers want Nike NFTs more.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Tapestry cuts profit forecast on impact of China lockdowns. The company joins other luxury goods makers such as Gucci owner Kering SA and Ray-Ban maker EssilorLuxottica in flagging a sales hit from the world’s second-largest economy, China, which is in the midst of lockdowns.

Tod’s says China lockdowns won’t derail 2022 results. Despite acknowledging a 40 percent sales decline in the second quarter in China was a possibility, the Italian luxury shoemaker is confident it will meet expectations. In the first quarter, the group’s sales rose by 23 percent, extending a recovery that started last year and beating market expectations.

Shein’s breakneck growth slows, testing $100 billion valuation. The fast fashion retailer saw annual sales growth slow to around 60 percent in 2021, according to people familiar with the business. That’s a steep plunge from an eye-popping 250 percent growth in 2020, when the arrival of Covid-19 turbocharged e-commerce demand.

Diamond prices spike, sanctions disrupt supply chain. The price of a small rough diamond has jumped about 20 percent since the start of March, according to people familiar with the matter. In the past, the industry could turn to behemoth De Beers to crank out extra gems when supply ran tight — but not this time due to sanctions on Russia.

Kohl’s fends off activist Macellum’s bid to overhaul board. Kohl’s shareholders voted against all 10 directors nominated by Macellum, according to a preliminary tally, the retailer said in a statement — a blow to the hedge fund, which has a stake in Kohl’s of around 5 percent and has been pressuring the company to overhaul its board or sell itself for two years.

JD Sports lifts profit estimates, sales rise. Britain’s largest sportswear retailer now expects headline profit before tax and exceptional items for the year ended January 29 to be about £940 million ($1.15 billion), and estimates profit for the current financial year to at least equal that.

Luxury brands pamper VIPs during Shanghai lockdown. Since the Covid-19 containment began on Apr. 1, closing stores and paralysing online shopping, brands have overcome attendant delivery difficulties to gift provisions to “very important clients.”

THE BUSINESS OF BEAUTY

Coty lifts annual profit forecast on resilient demand for luxury cosmetics. Revenue at Coty’s prestige division, which houses cosmetics and fragrances from the Hugo Boss, Gucci and Burberry brands, rose 21 percent to $726.4 million for the third quarter ended March 31.

Moda Operandi to expand into beauty. The luxury e-commerce platform is set to launch a beauty vertical, and has appointed Jessica Matlin as its director of beauty.

PEOPLE

Spanx taps Ashley Graham in first celebrity campaign. Graham will serve as the new face of the 22-year-old shapewear brand, which faces new challenges from upstarts like Skims.

LVMH readies for post-pandemic travel boom with new hospitality chief. The luxury goods conglomerate has appointed Stéphane Rinderknech as chairman and chief executive of LVMH Hospitality Excellence. He succeeds Andrea Guerra, Luxottica’s former CEO, who will step down from the role at the end of the month.

MEDIA AND TECHNOLOGY

Arianee, NFT platform for fashion and luxury, raises €20 million ($20.7 million). Tech investment firm Tiger Global led the round, which also included previous backers such as Bpifrance, an investment fund backed by the French government.

WhoWhatWear acquired by Future. The British media company, best known in the fashion industry for acquiring the US edition of Marie Claire last year, has purchased the Los Angeles-based fashion and shopping website for an undisclosed sum.

Singapore’s e-commerce giant Carousell to acquire Reflash. The move is part of Carousell’s efforts to increase its influence in the booming re-commerce market after acquiring Singapore-based secondhand sneakers and streetwear marketplace Ox Street last year. Financial terms were not disclosed.

Reliance Industries posts 22.5 percent higher fourth-quarter profit. India’s most valuable company, which has diversified over the years to retail, reported a 22.5 percent surge in fourth-quarter profit on Friday, helped by higher fuel demand and margins at its mainstay energy business.

Compiled by Joan Kennedy.