On May 13, 2022, a putative class action was filed in federal court against an online secondary marketplace that sells luxury goods (e.g., sneakers, handbags, and electronics) and, recently, non-fungible tokens (NFTs) that purportedly correspond to physical pairs of collectible sneakers held in the company’s facilities.1 Plaintiffs allege they purchased and sold products on the marketplace based on the marketplace’s misleading representations and omissions regarding the products’ existence, value, and/or authenticity.
According to the complaint, the marketplace falsely represented that the products were “100% authentic.” Plaintiffs also allege the marketplace sold NFTs that did not correspond to existing products, and those that did relate to physical products were sold at several times the value of the physical products they were linked to. In addition, Plaintiffs claim the marketplace falsely represented the purchaser could redeem the NFTs at any time. Finally, Plaintiffs allege that the marketplace allowed customers to incorrectly believe it had partnered with and was endorsed by global sneaker brands, including Nike and Adidas, in issuing NFTs related to their sneakers.
Based on this conduct, Plaintiffs claim the marketplace violated various state consumer protection acts, breached express and implied warranties of merchantability/fitness, committed fraud, made negligent misrepresentations, and was unjustly enriched.
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Companies operating marketplaces—and particularly those that operate secondary marketplaces—should proceed with caution if they incorporate NFTs into their business models. For example, to the extent an NFT corresponds to a tangible item, companies should implement measures to ensure the physical product itself exists and is of comparable value to the NFT. In addition, as evidenced by the surging number of intellectual property claims involving NFTs, there is an increased risk that a NFT falsely appears or is represented to be associated with or endorsed by a particular brand or person. Failure to carefully consider and address these issues could expose marketplaces to costly litigation, including similar fraud, negligent misrepresentation, and consumer protection violation claims.
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1Heriberto Valiente v. StockX, Inc., No. 1:22-cv-21489-KMM (S.D. Fla. May 13, 2022).
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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