(By You Yunting) In an earlier article, the author criticized Nike for skating close to 7-Eleven’s IP, but the current colorway dispute in fact involves not only 7-Eleven but also a Lawson colorway in the same series (Lawson is a Japanese convenience-store chain). Nike has previously faced IP disputes over brands such as Heineken and Starbucks. In my experience, mature companies that repeatedly become embroiled in IP disputes—as Nike has—are rare; such cases are more common among startups—early Google and Baidu, and today’s AI companies such as OpenAI, Anthropic, and Suno, among others. Their common feature is a high tolerance for IP risk on the part of management and a willingness to probe the gray areas of infringement aggressively. But are the two phenomena essentially the same? This article examines that question.
Companies of a certain size generally have an in-house legal department, one of whose key functions is IP compliance review. That review would normally catch recurring infringement disputes at the internal stage. For Nike, its legal team’s compliance task should be straightforward: the law on IP collaborations is clear. Using another’s IP in co-branded shoes requires authorization, and the rules on color (combination) marks and on the line between permitted collaboration and a likelihood of confusion are well defined.
While some in the market claim these shoes were produced as an “homage”, homage as such differs from using another’s IP without permission to free-ride on its popularity. “Homage” is not a legal concept that automatically exempts infringement liability. Using another’s work for commentary, criticism, or expression of a particular viewpoint may constitute fair use where the conditions under the PRC Copyright Law are met. But where another’s brand-identifying elements are merely placed on one’s own goods to attract consumers’ attention, invoking “homage” alone cannot eliminate the infringement risk.
If Nike used the 7-Eleven trademark, that is not a fair use. Nike also did two things to capitalize on the buzz: it fixed the launch for July 11(7/11), and it released a blue shoe inspired by Lawson’s color scheme alongside the 7-Eleven colorway. This was a blatant free ride on the reputation of both convenience-store chains to promote its Air Max shoes.
Given the number of similar disputes, if I were head of Nike’s legal department, I would establish an end-to-end IP compliance review mechanism from shoe development through sales to prevent recurrence. The legal department should review not only elements on the shoe and packaging but also marketing and launch plans—release timing, thematic packaging, and the like—and require corrective action wherever IP risk arises, and veto the launch if the risk is not cured.
Yet such an IP compliance system has clearly not been established to this day, and Nike keeps running into the same problem. The legal department’s role in these episodes is mainly cleanup: when a shoe that free-rides on another’s IP draws a suit, legal contacts the right holder to settle, halts the release, and pays a settlement to close the matter.
Is this incompetence on the part of the legal department? The more likely explanation, in my view, is that Nike’s management team backs the marketing department’s free-riding on others’ IP while sidelining the legal department in this matter. There is currently no evidence that Nike intentionally planned these controversial marketing moves, but it is clear that Nike does not treat IP compliance as equally important as marketing returns. Internally, Nike may well have budgeted for anticipated damages: if no one brings an enforcement action, a shoe that free-rides on another’s IP can earn substantial profits–profits sufficient to cover all damages and settlement payments — as with the Lawson-colorway shoe, against which no action was brought.
In this sense, Nike today looks less like a longstanding multinational corporation and more like a startup tolerating a degree of IP risk and pushing aggressively into infringement’s gray areas. On closer reflection, however, the differences between Nike and these genuine startups are significant.
The first difference is the nature of the disputes they face. As noted above, the legal rules governing Nike’s free-riding on others’ IP are clear, and the boundaries of infringement are well defined. By contrast, AI startups such as OpenAI and Suno face many important issues in their business models that are novel and unsettled by law: whether AI training materials—including copyrighted content and personality rights such as rights in voice and likeness—require authorization; and whether AI outputs that substitute for human creators may fall within fair use. These issues remains substantial legal controversy. Similar issues arose with Google in its early years: whether search-engine snippets and cached webpages constituted fair use.
Precisely because these questions have no ready answers and their boundaries must be clarified through legislative and litigation battles, startups cannot stop doing business in the meantime, which is why they are sued repeatedly. Until a path compatible with social development is forged for the industry, the legal departments of AI companies have no way to prevent such lawsuits. For Nike, by contrast, as noted above, its legal department is fully capable of preventing such IP-free-riding disputes by establishing an IP compliance system—provided that Nike’s management team supports it.
In addition, from an economic perspective, the potential upside for technology startups is much higher than those of traditional-industry companies like Nike. Google and Baidu, for example, have already moved past the startup stage; and an AI technology company that uses AI to disrupt existing technological pathways can create a listed company with a potential market capitalization exceeding US$1 trillion. That is why even a record US$1.5 billion settlement—such as the one Anthropic paid to resolve a class action arising from downloading and storing books from pirated sources—can be well worth it. Nike, by contrast, is only a consumer goods company; by skating close to the line in using others’ IP, it gains nothing more than short-term buzz for a single shoe model and at most a few million dollars in premium revenue.
As for losses, IP disputes cause severe short-term shocks to startups, whereas for Nike the long-term losses are likely to be substantial. Nike’s short-term quantifiable costs are mainly litigation compensation or settlement payments. Its long-term costs are twofold. First, in the licensing market: if other’s IP can be used without payment, the value of licensed collaborations will decline, and Nike’s existing licensing partners may reassess their relationships. Second, in terms of brand image: consumer trust in the brand is an important intangible asset for Nike. If the company is repeatedly accused of using others’ IP without authorization, that can easily provoke consumer resentment, and the resulting harm to brand equity may far exceed those costs.
In the short term, litigation costs, damages, or settlement payments will drain a startup’s cash reserves, and defending claims will divert management attention. If a dispute involves core technology, content, or data sources, the company may also be forced to stop using the relevant resources, adjust its products, or even rebuild its technology and business systems. Unresolved IP exposure may undermine investor confidence, depress financing valuations, and affect cooperation with other companies. If, however, a startup’s technology and business model genuinely deliver social value, and the company survives the development bottleneck and validates that business model, its long-term prospects remain favorable.
The foregoing analysis shows that repeated IP disputes at a longstanding company like Nike amount to an inefficient gamble that bets brand equity on short-term attention. Such an approach may generate momentary buzz, but it quietly erodes long-term brand credibility and the licensing ecosystem. A management decision that repeatedly exposes the company to infringement disputes is plainly unwise.
By contrast, although technology startups are frequently sued during their exploratory phase because those legal boundaries must be clarified through litigation, if they can drive technological transformation across an entire industry, they will create immeasurable commercial and social value. For that reason, startups’ decision to operate at the boundaries of compliance is plainly more reasonable. What truly deserves encouragement, of course, is exploring new technologies and business models while respecting the lawful rights and interests of rights holders.
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