Disgruntled artists, major brands and competitors have filed lawsuits this month against online fast-fashion retailer Shein. As a result, the company’s copyright usage, labor practices and competitive behavior have come under fire. These legal troubles follow the company’s heavily scrutinized influencer trip to a Shein factory that it hosted in June. But whether these challenges will hurt the retail giant will depend on how quickly the suits are resolved.
Shein has been hit with lawsuits by independent artists, through a Racketeer Influenced and Corrupt Organizations (RICO) Act suit filed on July 11; fast-fashion company Temu, via a competitor antitrust suit filed the same week; and H&M, with a copyright infringement suit on July 24.
According to a May 2023 valuation report, Shein is valued at about $66 billion, which is much higher than fast-fashion brand H&M, at $12.7 billion, and slightly above Zara-owner Inditex, at $56 billion. Its rival company, Temu, was valued at $64 billion as of March.
“Shein is eager to portray itself as a fair and reasonable company that stays on the right side of ethics and laws. Unfortunately, several cracks have opened which undermine its position,” said Neil Saunders, retail analyst at consulting company GlobalData. Saunders noted that Shein’s global head of strategy has done press to talk about the trip. In addition, Shein hired Adam Whinston, its first global head of environmental, social and governance in 2021.
Shein’s RICO lawsuit, which involves the most penalties, was filed on July 11 by artists Krista Perry (@kristerpelly), Larissa Blintz (@larissablintz) and Jay Baron (@jaybaron). The artists are accusing the company of intentionally selling copies of their intellectual property, including their prints and designs, among other charges. The charges made are typically used for racketeering in large-scale criminal activity.
The artists allege in the suit that Shein’s copyright infringements were made by a “de-facto association of entities” that are umbrellaed under Shein. The suit alleges that Shein “knowingly committed criminal copyright infringement, [and] played its role with full knowledge of the overarching criminal copyright infringement it participates in.” According to the filing, the company’s management creates a complex corporate structure with semi-related shell companies, affiliated conglomerates and international holdings groups. This structure makes it difficult to hold the Shein brand accountable for wrongdoing.
Regarding RICO, Shein has said that it “takes all claims of infringement seriously.”
“We take swift action when complaints are raised by valid IP rights holders. We will vigorously defend ourselves against this lawsuit and any claims that are without merit,” said a Shein spokesperson via email.
The Temu lawsuit, meanwhile, accuses Shein of creating exclusive contracts with 8,338 independent manufacturers in China that bar them from working with Temu. Temu said this means U.S. consumers do not have “access to direct price competition” and its fashion sales have fallen sharply as a result. Temu did not elaborate on sales. Temu entered the U.S. market in 2022 and has since become one of the most downloaded apps in the region. It targets Gen Z and Gen Alpha consumers through low prices and giveaways.
Regarding Temu’s lawsuit, Shein said in an emailed statement, “We believe this lawsuit is without merit and we will vigorously defend ourselves.”
Shein is already embroiled in a court case with Temu from December 2022, in which Shein accused Temu of paying influencers to spread “false and deceptive statements” about Shein on social media. Temu has denied the accusations and has requested the suit be dropped.
Shein’s most recent lawsuit comes from fast-fashion brand H&M Group. The Stockholm-based company asked for unspecified damages and an injunction to stop Shein from infringing on its copyright and trademarks. Although the lawsuit was filed in September 2022, the hearing in Hong Kong took place on July 21. It has not yet been resolved.
“Shein will not only have to take the time to deal with these lawsuits, but it will also need to manage any reputational fallout,” said Saunders. “All of this is not helpful to a company that is keen to establish a good reputation as a prelude to an IPO.”
Shein came under questioning by U.S. lawmakers in May for its labor practices in China. Its use of U.S. duty exemption charges and data privacy disclosures was also examined. Shein has denied both that it is considering an IPO and that it is using forced labor.
Shein, which lists over 10,000 new items per day, has previously come under criticism for the working conditions in its factories, copyright infringement and toxic chemicals in its clothing. Temu’s sister company, Pinduoduo, has faced similar allegations in China. And Shein’s influencer trip in June received backlash for allegedly not showing a real factory environment. The influencers invited on the trip have since apologized to their viewers for their involvement in sharing misleading information.
“Efforts to quell speculation about the negative impact the company’s manufacturing operations have on the environment and people have backfired,” said Saunders. “Consumers saw through the recent influencer tour of what looked like a sample factory, and the debacle has raised more questions about what the conditions of real factories are like.”
“It can be expected that Shein may be forced to pay an unspecified amount in damages to H&M, and an injunction may be put in place to stop them from infringing on the copyright and trademarks of H&M. Similarity, this can be said for the impacted designers within the RICO lawsuit,” said conflicts analyst Bunmi Jenfa who works at law firm Allen & Overy. “With Shein’s reputation already hanging by a thread, […] their poorly executed influencer trip in June, the credibility of the company would suffer a significant blow should they lose the lawsuits brought against them.”
Jenfa added that the seriousness of the RICO lawsuit shouldn’t be overlooked. “The implications from this loss could see Shein being shut down and liquidated,” said Jenfa. “Verdicts against defendants often result in businesses being forced to pay millions of dollars in fines and compensation with further legal repercussions.”
There are also issues with Shein using a legal loophole to avoid paying tariffs for packages sent to the U.S. Shein uses a U.S. duty exemption on its low-priced direct shipments to consumers. Under the de minimis rule, any goods valued under $800 are considered too small to be subjected to tariffs or most inspections. In 2022, about 685 million de minimis packages arrived in the United States from China. The products in Shein orders average $11, resulting in Shein being exempted from the standard 16.5% standard duty and the 7.5% tariff specific to China. At the moment, there are no legal implications. However, U.S. legislators allege that this is something that should be corrected.
The U.S. federal agency U.S.-China Economic and Security Review Commission released a brief in April 2023 that says that the success of Shein and Temu, along with other Chinese e-commerce companies, “has encouraged both established Chinese e-commerce platforms and startups to copy its model, posing risks and challenges to U.S. regulations, laws and principles of market access”.
Shein is not putting large amounts behind its lobbying efforts. For the July 21 filing to lobby on Capitol Hill, the company spent $600,000 within in the second quarter of 2023. By comparison, U.S. retailer Walmart spent $1.62 million on lobbying efforts in Q2. Since the third quarter of 2022, Shein has paid lobbying firms Hobart Hallaway & Quayle Ventures and Akin, Gump Strauss Hauer & Feld $500,000 and $270,000, respectively, according to the firm’s filings.