Nike is being hit with a class action lawsuit demanding over $5 million in damages after shutting down its Web3 NFT platform RTFKT in January.
A group of RTFKT users filed the lawsuit in the Eastern District of New York on April 25, claiming that they suffered “significant damages” after Nike touted its sneaker-themed NFTs to win investors, before pulling the plug on the platform.
Founded in 2020, RTFKT offered shoes and collectibles that could be used by various avatars and applications in the metaverse. Nike acquired the company at the end of 2021 in a bid to tap into RTKFT’s user base—as well as its expertise in blockchain and augmented reality technologies.
The lawsuit argues that the NFTs sold by Nike were unregistered securities, because the sports giant sold them without registering with the US’s Securities and Exchange Commission (SEC). The plaintiffs accuse Nike of using “its iconic brand and marketing prowess to hype, promote, and prop up the unregistered securities that RTFKT sold,” as outlined in the lawsuit. They further claim that they would not have bought the NFTs had they known that they were “unregistered securities.”
“Because the Nike NFTs derived their value from the success of a given promoter and project—here, Nike and its marketing efforts—investors purchased this digital asset with the hope that its value would increase in the future as the project grows in popularity based in the Nike brand,” the complaint reads.
The lawsuit argues that Nike broke consumer protection laws and violated several states’ unfair trade and competition legislation when it closed the platform. It adds that the court doesn’t need to weigh in on the legal status of NFTs to address the complaint.
Whether or not NFTs are in fact securities is a hotly debated issue in a murky, unregulated environment. A US court has yet to rule on the matter, but in 2023, the SEC entered into a settlement with media company Impact Theory, finding that the firm’s NFTs were securities—and as a result, determining that Impact Theory had engaged in an unregistered security offering. This the SEC’s first case in the NFT arena.
Last year, Dapper Labs, the makers of the NBA Top Shot NFTs, settled a case with investors who alleged that Dapper’s NFTs were unregistered securities, for $4 million. In that case, a Southern District of New York judge determined that NFTs could be considered as securities under the “Howey test,” a legal framework established by the Supreme Court to classify securities. However, Dapper settled before a final determination was made by the court.
One of the largest NFT marketplaces, OpenSea, wrote a letter to the SEC on April 9 demanding it to remove NFTs from federal securities law arguing that they don’t meet the legal status of a security.
Nike has yet to comment on the lawsuit.
