Nike, Inc. v. StockX LLC, 2024 WL 3361411, No. 22-CV-0983
(VEC) (S.D.N.Y. Jul. 10, 2023)
Nike sued over StockX’s use of Nike trademarks on StockX NFTs
without Nike’s consent and alleged sales of counterfeit Nike sneakers despite allegedly
guaranteeing that all products sold by StockX were authentic. This opinion
deals with various Daubert motions, allowing at least some of the
testimony of eight challenged experts in.
Counterfeits background:
Unlike some other major resellers
like eBay, StockX acts as an active intermediary. Prior to listing a product
for sale on its website, StockX takes physical possession of that item and
purportedly vets it through “a proprietary, multi-step authentication process.”
According to StockX, no item is listed for sale unless it passes that test, a
fact that, prior to the filing of this complaint, StockX touted on its website
in support of its guarantee that all listed goods were “100% Verified
Authentic.” Nike claims that, despite those efforts, StockX sold a number of
Nike-branded shoes that were counterfeits.
NFT background:
In early 2022, StockX introduced
Vault NFTs, which featured Nike’s trademarks and provided the holder ownership
of an associated physical item. Many of the physical items were Nike sneakers.
Around the same time, Nike began releasing its own NFTs. As with the physical
sneakers, StockX claimed that its NFTs were “100% Authentic.” … The parties
dispute whether the StockX NFTs were separate, virtual products that conveyed
benefits beyond access to the physical good or merely receipts that allowed an
NFT holder to claim ownership of the underlying good without taking physical
possession.
StockX’s expert Sarah Butler surveyed consumers on the
effects of StockX’s authenticity statements as a rebuttal to Nike’s expert John
Hansen. “The test group was presented five pages from StockX’s website
featuring the Authenticity Statements, and the control group was presented with
similar webpages that featured versions of those statements that omitted
references to ‘authentication’ or substituted them with references to ‘inspection.’”
Butler found that there was no statistically significant difference in cells’
self-reported likelihood of purchasing shoes on StockX, suggesting lack of
materiality.
Nike’s criticisms warranted cross-examination, not
exclusion.
First, Nike argued, materiality was irrelevant because
literally false claims are conclusively presumed to be material. (The cases of
which I am aware say that literally false claims are presumed to be
material, not conclusively presumed—it seems reasonable to say that the
presumption should be rebuttable, and the Second Circuit’s holding in the NBA
v. Motorola case—which held that the statement that scores were updated “from
the arena” was immaterial because of its lack of prominence in/relevance to the
main ad claim—certainly implies rebuttability, even from context alone.) Rather
than treating the presumption as irrebuttable, however, the court here merely
said that literal falsity depends on context, and literal falsity of the authenticity
statements was still a contested issue, at least for now.
The rest of Nike’s objections went to reliability, which
generally goes only to the weight of the evidence. Surveying previous
purchasers from StockX was a potential weakness, but “not so egregious or clear
cut” as to warrant exclusion. Nike also alleged that the survey was tainted
with demand effects that “ ‘cued’ respondents that StockX was the survey’s
sponsor” and that “the correct answer” was to indicate a likelihood to purchase
from StockX. The putative sources were a screener question measuring current or
past interest in purchasing from StockX and the inclusion of StockX webpages
with “overwhelmingly positive content.” But the screener question offered StockX
as just one option in an order-randomized list of fifteen resellers, which wasn’t
a problem. As for the positivity of the ads, “consumer surveys in false
advertising cases commonly display the challenged advertisement.” (Surely a
highly negative control is not a very plausible ad.)
Nike also criticized the control as insufficiently distinct
from the test—“inspection” wasn’t sufficiently different from “authentication.”
Indeed, a handful of individuals in the control group said they were likely to
buy from StockX because of its authentication process. But this too was fodder
for cross-examination. And the fact that respondents responded very similarly
to both claims didn’t require a finding that the survey was flawed; the alternate
plausible explanation was that StockX was right about immateriality. The court
pointed out that Nike’s own complaint treated “authentication” and “inspection”
differently, claiming that the shoes were not properly authenticated, not that
they weren’t inspected. The dictionary agreed that “authentication” involves a
guarantee that the product is genuine; inspection does not. “Of course, a
survey respondent could have easily reached the conclusion that the ‘inspection’
process was designed to weed out counterfeit products. That is an obvious
ground for cross-examination but not exclusion.” (In the context of puffery,
courts often distinguish “designed to” from “guaranteed or confirmed to”; if
that’s the case—which I’m not sure it is, but that’s a problem with puffery
doctrine—then surely it must also matter in determining meaning.)
Nike’s complaints about the stimuli were also nitpicking;
stimuli must merely roughly simulate market conditions. “Nike does not explain how the minor
differences in the layout of products and third-party advertisements, which
have no significant effect on the content or display of the Authenticity
Statements, render the survey results unreliable, let alone less probative than
prejudicial.”
Nike also argued that testing all the challenged statements
at once overwhelmed respondents, and that respondents were only required to
view the pages for a minimum of ten seconds. (This seems like an implicit
criticism of Nike’s own theory of deception; if they overwhelmed respondents,
how could they all be deceptive? There’s an answer, of course, which is probabilistic:
those who noticed a particular statement might have been deceived by it.) Regardless,
real consumers vary in their engagement with ads, and frequently only interact
with them for a short time. Cross-examination could address any deviation from
market conditions.
As for StockX’s economist damages expert, the court granted
Nike’s unopposed motion to exclude his affirmative opinion regarding other
factors that drive a consumer’s decision to purchase on StockX, but allowed it
as rebuttal testimony. “At bottom, a rebuttal expert need not proffer a
methodology or model, but only critique the opposing expert’s.”
StockX was also allowed to present the expert testimony of a
self-professed “sneakerhead,” who opines on sneakerhead culture and explains
how sneakerheads view the Vault NFTs and navigate the secondary market. His
testimony was based on his own experience and his conversations with others. This
was relevant to show the degree of sophistication of the sneakerhead community
and “contextualize the manner in which members of the sneakerhead subculture
approach their purchasing decisions.” His opinions that sneakerheads credit the
Authenticity Statements as improving the resale experience were “relevant to
the sophistication of at least this subset of StockX’s consumers and how likely
they are to be deceived by any falsehoods.” Nike acknowledged that at least
some of the Nike-branded sneakers purchased on StockX were bought by avid
collectors. However, if the statements were shown to be literally false, Nike
could re-raise its Daubert motion.
His methodology was also reliable, based as it was “on his
vast experience with the sneakerhead community, including his discussions with
other sneakerheads over the years.” Also, the fact that he acknowledged that there
were other definitions of “sneakerhead” and that the group is heterogeneous
wasn’t a “fatal” flaw meriting exclusion as opposed to cross-examination.
Nike’s expert Kari Kammel leads the Anti-Counterfeiting and
Product Protection Center at Michigan State University. Kammel opined on the
rise of counterfeiting generally and on platforms like StockX, as well as what
constitutes authentication. The court allowed Kammel’s testimony except for
testimony about (1) counterfeiting generally and (2) about shoes that Nike
claimed were counterfeit and sold on StockX, but that were not previously
disclosed to StockX.
Counterfeiting generally: Kammel opined that counterfeiting
can be tied to terrorist activity and results in lost jobs and tax revenue.
Nike argued that these opinions were important to contextualize the alleged
counterfeiting enabled by StockX, including the fact that a counterfeiting
operation based in China sold over 1800 products on StockX. “Even assuming that
Kammel could reliably connect these global forces to the parties in this case,
the jury does not need a primer on the complex global economics and geopolitics
of counterfeiting to understand the relatively narrow set of facts in dispute.
Nor is this testimony necessary to establish a factual basis for her opinion.”
In addition, “the lay public, particularly in New York, does not need expert
testimony to understand that luxury goods face high demand or that
counterfeiting is on the rise. The Second Circuit has made clear that district
courts should exclude expert testimony within the jury’s ken, including matters
that are frequently in the news.” Any minimal relevance was outweighed by the
risk of wasting the jury’s time.
However, Kammel could opine about “how StockX’s
authentication practices may make it vulnerable to counterfeiters and the types
of harms that companies like Nike experience from counterfeiting.” This opinion
was based on “a review of the discovery in this matter, discussions with Nike’s
Vice President for Brand Protection and Digital IP, her own experience, and
materials from trade associations.” In addition, her opinions on what constitutes
authentication, based on the International Organization for Standardization, were
“reliable and relevant to StockX’s state of mind.” She was also qualified to
opine in rebuttal on how consumers approach the risks of encountering
counterfeits in the market.
Nike’s damages expert John Hansen, a forensic accountant,
sought to quantify a potential disgorgement award. StockX moved to exclude it
because his calculations were based on StockX’s profits from all of its sales
of Nike sneakers, not just sales attributable to the allegedly false
advertisements. The court rejected that argument: Nike must demonstrate “
‘economic or reputational injury’ proximately caused by the alleged false
advertisement” to establish a false advertising claim. But once that’s
established, the court may “award a defendant’s full profits,” not just those
directly tied to the violation.
However, his opinion with respect to direct harms to Nike
was unreliable and didn’t apply any expert methodology. Lay witnesses and
documentary evidence, and the inferences to be drawn from that evidence, could be
argued by Nike’s lawyers to establish direct harm to Nike.
Another Nike witness was allowed; he sampled shoes and
opined that, in the year prior to his opinion, StockX sold “at least 200,000
shoes … that were simultaneously offered by Nike for retail sale.”
And a Nike NFT witness was allowed in part. He studied
blockchain and cryptocurrency at MIT and has extensive experience in the
cryptocurrency sphere. He opined that, while the Vault NFTs were marketed and
understood by consumers to be NFTs, they were not true NFTs. He compared the
prices of the Vault NFTs to the underlying shoe to argue that consumers
believed the Vault NFTs carried additional benefits.
He would be allowed to testify about the technology
underlying NFTs, which was appropriate expert testimony subject matter. But his
pricing opinion wasn’t based on an explained methodology. He didn’t explain why
subtracting the price maxima on possibly different dates was a reliable method
of valuing the benefits of the Vault NFTs beyond providing access to the
physical shoe; he hadn’t used the approach before nor did he connect it to an
accepted method of comparative valuation. His opinion that it was “illogical”
for consumers to pay a premium for storing their sneakers with StockX was
insufficient. Nike could establish a price premium through documentary evidence
and basic logical arguments. Likewise, his opinion on consumer perception of
StockX’s Vault NFTs were not based on expert methodology; he relied on StockX
documents, including internal materials, and social media posts. This wasn’t
beyond the ken of a lay juror; the documents spoke for themselves.
Finally, Nike’s survey witness Itamar Simonson was allowed;
he conducted two surveys based on a variation of Eveready that sought to
measure whether consumers understood the Vault NFTs to be sold or endorsed by
Nike. StockX argued that his methodology wasn’t adaptable to the resale context
where resellers may use the original producer’s trademark to describe the
product being resold. But resellers don’t have “carte blanche” to use another
company’s trademarks, and maybe the use on the Vault NFTs wasn’t permissible.
Anyway, even if “Simonson failed to account for the fact that consumers may not
be able accurately to identify a seller when presented with more than one
trademark, or that the inclusion of more than one trademark may be permissible,”
that wouldn’t justify exclusion.
Likewise, his use of a broad universe—people who, inter
alia, (1) owned or expected to purchase sneakers; (2) were looking for new
investment or collection opportunities; (3) were interested in investing in
NFTs, buying collectibles, or investing in cryptocurrency; and (4) previously
purchased new products from online resale marketplaces—sufficiently
approximated the appropriate population such that this just affected the weight
to be given his surveys.
The court didn’t think that the use of “products” when
referring to a list that included pictures of four shoes (including one Nike
shoe), a watch, a trading card, and an action figure, then repeating the term when
asking the test group to describe which company offered the depicted “product /
NFT” primed respondents to respond that Nike offered the shoe. Even if it was
leading, that again went to weight.
The court also allowed Simonson’s testimony that the Vault
NFTs represent an “unauthorized extension of the Nike Brand into [a] new
category.” This was offered as a rebuttal to the opinion of StockX’s expert
Scott Kominers that the Vault NFTs are not “ ‘digital brand’ NFTs” that serve
“as a springboard for establishing a broader product … brand,” and that to
the extent that the Vault NFTs do have a digital brand, “the digital brand is
unambiguously that of StockX alone.” This didn’t improperly embrace the ultimate
legal issue of whether StockX needed Nike’s permission to sell the Vault NFTs,
since his opinion that unauthorized brand extensions caused brand owners to “lose
control” of the brand didn’t “purport to opine as to whether such authorization
was legally required.”
from Blogger http://tushnet.blogspot.com/2024/07/court-allows-nikes-legal-theories-and.html
Rebecca Tushnet 