Strategy Analysis: Nike’s No-Win, 14 Day Lawsuit on the Lil Nas X Satan Shoes

Strategy Analysis: Nike’s No-Win, 14 Day Lawsuit on the Lil Nas X Satan Shoes

In an era when we often measure the length of the lawsuits in years, the exceptional brevity of the Nike v MSCHF Product Studio, Inc. revealed the thorniness of Nike’s position in the case.

MSCHF Product Studio, Inc. (“MSCHF”) manufactured 666 pairs of Satan Shoes by altering Nike Air Max 97 shoes. The alterations included a red 6/666 embroidered on the side of the shoe and a verse from Luke which references Satan falling from heaven. The name of Lil Nas X was also emblazoned on the altered shoes.

On March 26, 2021, the date of the release of Montero by Lil Nas X, a tweet announced the availability of the Satan Shoes. Notably, the video features a sequence of Lil Nas X falling down what appears to be an endless stripper pole. Nike filed a complaint in Federal Court alleging trademark infringement and other related causes of action.

Possible Weaknesses in Proving the Nike Case

As plaintiff, Nike would need to prove its case. To do so, it would need to demonstrate by multiple factors that there was trademark infringement. Since the case was in the 2nd Circuit, the relevant factors are found in Polaroid Corp. v. Polarad Elecs. Corp. (2d Cir. 1961) 287 F.2d 492).

Some of these factors would certainly fall in favor of Nike, for example the first factor on the strength of its mark. However, other factors would certainly prove more problematic.

For example, Nike would need to demonstrate actual confusion. Nike did this in the temporary restraining order by attaching ad hoc internet comments presumably from enraged Christians. But dear reader, did you ever for one minute believe that the NYSE listed Nike had abandoned its mainstream appeal by marketing “Satan Shoes” with human blood in them? Evidence of likelihood of confusion in trial would likely require public opinion surveys on the matter and it’s far from clear what those surveys would show.[1]

Another Polaroid factor is proximity of the products. A central purpose of trademark protection was to protect the consuming public from accidentally being confused on the source of a product. Thus, a laundry detergent called Tyde sold in an orange bottle with a blue cap on the same shelf for roughly the same price has a high amount of proximity.  In that scenario, a real risk exists of a consumer buying watered down detergent mistaking it for the real Tide. But in this instance, where is the danger? Are collectible sneakers that sell for over a $1,000 in proximity to retail sneakers people intend to wear? I try to imagine the testimony: “Uh, yes your honor, I was at Finish Line looking at an $170 pair of Nike shoes. I slipped, fell onto my phone and clicked onto the Lil Nas X Tweet and accidentally bought the $1,018 pair of Satan Shoes instead.”

An additional Polaroid factor is the consideration of whether Nike would “bridge the gap” and eventually move into this market. Continuing to use Tide as our example, if a seller started marketing coffee with a mark of Tide, the law wouldn’t consider that a natural expansion of the Tide brand. However, a clothes hanger marketed with the name Tide might start to infringe on an area of natural expansion of the Tide mark. Here, it’s unclear whether Nike intends to expand into products of the occult. Further, supposing that Nike narrowly defined the Satan Shoes as existing in the market of athletic shoes, the temporary and limited nature of the MSCHF offering wouldn’t seem to preclude Nike from bridging the gap at a later time of its choosing.

The sophistication of the buyers is also factor in the Polaroid case. MSCHF argued that sneakerheads willing to shell out over a $1,000 for a pair of sneakers were sophisticated buyers. Nike argued that even sneakerheads had been confused by the rollout of the Satan Shoes. Recall, however, that trademark law exists to protect consumers against source confusion and historically that’s been a greater concern with lower priced, lower information goods. Here then there’s a definite edge for MSCHF.

For sake of brevity, this article won’t review every factor. The Polaroid test is the kind of test in the law that is like throwing a dart. One factor isn’t dispositive. The written opinion, of course, would visit each of the Polaroid factors as if justice has been meted out in the majesty of our system. But more than likely the sentiment of the judge would drive the outcome. That makes the outcome even more unpredictable. Nike could prevail on its case in chief. Or not.

Multiple Credible Defenses

Even supposing Nike could prevail on its case in chief, it would not be out of the woods. Any practicing litigator will attest that reading a judge’s order or conducting a jury interview after the case, even in victory, can prove humbling. After months and months of preparation, the jury might run with an idea that seemed immaterial to both lawyers. Or with a judge, sometimes their order rests on a legal theory that received little attention in the case.

Here, then, MSCHF had an advantage simply by the fact that it had more than one credible defense. Even if neither defense is perfect, there’s a real likelihood that a judge or jury would latch onto one of the defenses. Nike requested a jury trial and the defenses here for MSCHF might inquire legal jargon, but it would not be difficult for any jury to understand.

MSCHF would likely raise the first sale doctrine as a defense. Most jurors would have familiarity with this defense because of actions in their own lives. When a person lists a Ford Mustang for sale on Autotrader using the word “Ford” or their collection of vintage “Cabbage Patch” dolls for say on Ebay, the person is availing themselves of the first sale doctrine. Basically, once item has been sold by the manufacturer, buyers are able to resell it using the mark.

Here, MSCHF had purchased actual Nike shoes and had added the flourishes turning it into a “Satan Shoe.” Nike argued the first sale doctrine does not apply where the product is altered to be ‘materially different’ from the original product” (citing Bel Canto Design, Ltd. v. MSS Hifi, Inc., 837 F. Supp. 2d 208, 223 (S.D.N.Y. 2011)). But, Bel Canto Design, Ltd. involved products where an unauthorized dealer had altered the serial number and thus invalidated the warranty. Indeed, the cases cited by the Bel Canto Design court often involved the material difference of a warranty.[2]

Manufacturers often argue against the first sale doctrine to try to control more of their distribution chain. The moral underpinning of their argument, in my view, tends to rest on warranty issues because there would be a fundamental unfairness if a manufacturer had to stand behind goods which had been drastically changed. By way of example, let’s assume a car dealer replaces all of the dowdy factory wheels and tires on cars on its lot with souped up fancy rims (which are more likely to be damaged in potholes). In that scenario, it wouldn’t be fair when consumers came in with broken wheels to force the manufacturer to pay to replace the wheels.

In this instance though, was that really a concern? Did Nike expect consumers of the Satan Shoes to call the Nike hotline: “Excuse me, the human blood in your shoes has not transformed me into a satanic figure. I’d like a refund.”[3]  Nevertheless, the existence of the warranty might cause a judge to view the Satan Shoes as materially different and rule that first sale doctrine would not apply.

On the First Amendment defense, Nike argued, based on AM Gen. LLC v. Activision Blizzard, Inc., 450 F. Supp. 3d 467, 478 (S.D.N.Y. 2020) (quoting Rogers v. Grimaldi, 875 F.2d 994, 999 (2d Cir. 1989)), that where a defendant creates an expressive artwork and asserting First Amendment rights that the defendant must show that the work has “artistic relevance” to the trademark and does not explicitly mislead as to the source of the work.

My own view here is that Nike completely ignored that the fact that it largely represents the heteronormative sports industrial complex. Yes, of course, Nike has supported gay athletes. But in large parts of the country, the heteronormative sports industrial complex has overtly Christian overtones. Or to put it differently, if a gay kid was kicked and bullied in middle school, it’s highly likely the kicker was wearing Nike shoes. When MSCHF chose to sell “Jesus Shoes” 18 months earlier Nike did not sue. Nike, argued it was under no obligation to sue which, although true, their choice not to do so implies their alignment with the same forces that Lil Nas X mocked in the Montero song and video. The rappers’ real name is Montero Lamar Hill and thus the choice of the name for the song (especially in light of the nature of the video) suggests personal relevance to Lil Nas X.

The threshold for artistic relevance is low. The Satan Shoes unquestionably met the standard for artistic relevance. Once that standard is met then finding of likelihood of confusion must be particularly compelling to outweigh the First Amendment. What courts do in such an event is to revisit the Polaroid factors to ensure that trademark law is not being used to infringe on free expression.

Really the outcome here would be in doubt until the opinion were issued and a prudent lawyer would not wager on it. Nevertheless, on the First Amendment defense MSCHF has a slight edge because 1) Nike has some inherent challenges in demonstrating infringement using the Polaroid factors anyway and 2) the religious themes in the shoes and the related song would be perceived to be especially protected free expression that would likely carry the day.

The District Court Threw MSCHF a Bone

What judges want more than anything is for a case to settle. In preliminary hearings of all types up to and including summary judgment, often times when deciding certain issues or causes of action for one party, the judge will make comments favorable to both parties to apply pressure for the case to settle.

Here, Nike prevailed on its temporary restraining order. Thus, the Judge ruled in Nike’s favor. But in the order, on three separate occasions, Judge Komitee stated his decision was based on a “limited record” and he expressly stated near the end of the order that “First Amendment rights of artistic expression are paramount” and added that the “Defendant will have a full opportunity to pursue this [First Amendment] affirmative defense at the preliminary injunction stage.”

These tea leaves suggest that the Judge might have been open to the First Amendment defense. Of course, we risk reading too much in these tea leaves, but undoubtedly it would have at least telegraphed to Nike that it had some risk of losing at later stages. Presumably this was considered in the ultimate settlement.

A Nike Loss Could Reverberate Beyond the Case at Hand

In a way, Nike had its cake and ate it too by settling super-fast. This type of public relations fracas undoubtedly helps Nike maintain its cultural cachet.  MSCHF is not the only player upselling Nike shoes and anytime folks pay over a $1,000 for a pair that costs Nike approximately $28.70[4] it’s like a halo on the whole Nike ecosystem.

Nonetheless, the last thing Nike (or most brands) want is a road map for others on how to avail oneself of the first sale doctrine or the First Amendment to repurpose and upcycle their brands. A loss here might have provided potential upcyclers with recent case law on essentially how to avoid trademark infringement while operating in close proximity to a mega brand. Currently, cease and desist letters from manufacturers rely on grey area legal doctrines to keep upcycling players and small-time resellers operating insecurely in a space with opaque definition.

True, this case DID have unique and compelling First Amendment overtones which would be lacking in most other circumstances. So, it’s possible that the value of this caselaw could have been limited. Conversely though, if someone in the apparel or fashion industry were looking for a case on which to build new favorable case law, because of the real First Amendment overtones, this certainly was not the right case to use.

A Pyrrhic Nike Win

And finally, even supposing Nike had proven its case in chief and batted down the plausible defenses would it have truly won? Tellingly, we can presume that Nike chose NOT to sue Lil Nas X. He could have easily been named as a defendant for trademark infringement and, presuming he had an interest in the collaboration, for a disgorgement of profits. The details of his arrangement with MSCHF remain unknown. Nonetheless his NAME appeared on the shoe, his image appeared in the initial advertisements and the release coincided with the date of his release of Montero.

Superman can’t touch kryptonite. Lil Nas X’s Old Town Road spent an unprecedented 17 weeks at the top of the Billboard Hot 100. Montero has surpassed 500 million streams on Spotify and is the fastest song to do so. Nike did not want to sue Lil Nas X.

At 22 years old, Lil Nas X is obviously an ambassador to a rising generation. In context, Nike stars like Lebron James (36), the Williams sisters (40), Tiger Woods (45) or Michael Jordan (58) seem somewhere on the spectrum of almost Middle Aged to Ancient. Next, the brand has situated itself at a highly profitable nexus of the American cultural spectrum: slightly progressive of center. Had Lil Nas X become visibly engaged or embroiled in the lawsuit, which appeared to be mollifying the Christian Right, it would upset that brand equilibrium. The last thing Nike would want is a coterie of young drag queens coming to the defense of Lil Nas X and tweeting that Nike shoes were for Dad bods or “Karens.” Indeed, those insults are probably already too dated and the sarcasm would cut with the next round of hot buzzwords. Eventually those jokes bubble their way up into the mainstream. Bit by bit they get written into sitcoms or stand up routines and it would be a muddy outcome for Nike. A brand can survive anger more easily than derision.

Conclusion

For Nike, this case was obviously never about money, or at least not the financials related to the 666 pairs at issue. Some websites estimate that they sell 780 million shoes a year. In its 2020 annual report, the company reported it had over $8 billion of cash or cash equivalents on hand. 666 pairs of shoes would not move the needle. Indeed, a multiyear litigation with an expensive New York firm would be little more than a rounding error.

The released settlement terms were a voluntary recall with MSCHF providing a warranty on the shoes.[5] Though I have no inside knowledge on the remaining terms of the settlement, from past experience what I suspect is that MSCHF might have also had to covenant not to manufacture more shoes with the Nike mark. I highly doubt any money changed hands.

All in all,  a splendid little lawsuit for Nike and kudos to the brilliant decisions by its legal team. Sure, for those of us who are gay we know that by entering into the lawsuit Nike disgracefully capitulated to the exact forces Lil Nas X mocked in the video. But in Nike’s defense, those people buy a lot of shoes and apparel. After supporting Colin Kaepernick, Nike probably decided it couldn’t risk alienating this demographic any further.

Most importantly, they settled quickly. At the risk of dating myself, Ferris Bueller’s Day Off would be a terrible movie if Principal Rooney caught Ferris. Right now, Lil Nas X is still riding until he can’t ride no more. Unlike Principal Rooney, I think Nike knew it. It’s as if they called Sloan’s father to confirm the death in the family, but then mirthfully watched Sloan leave in the Porsche, shrugged their shoulders and lived to fight another day.

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About Joe Huser, Esq.

Joe Huser is a California business lawyer, consultant, fixer, confidante and writer. Joe can be reached at joe@joehuser.com or at 213-271-1520.

 

[1] If the last decade has taught us anything, however, it’s that some portion of the populace will believe anything Indeed, my microchip from the COVID vaccine has suggested to me that I should never bet against the gullibility of some Americans. Therefore, we could presume that Nike would show actual consumer confusion.

[2] I suspect that if MSCHF had it notified its customers that the Nike warranty would no longer be valid, it would have a stronger defense here.

[3] Notably the original Nike warranty is for two years. (See https://www.nike.com/help/a/shoe-warranty). Conceivably given the speed of normal litigation, a two-year period may have transpired before trial without a single purchaser of the Satan Shoes availing themselves of the warranty.

[4] https://solecollector.com/news/2014/12/how-much-it-costs-nike-to-make-a-100-shoe

[5] https://www.inputmag.com/style/nike-reaches-settlement-with-mschf-lil-nas-x-wants-satan-and-jesus-shoes-bought-back.

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