A federal court in the District of Columbia recently refused Temu’s “unusual request” to shield the names of third-party fast fashion suppliers in a case that it is waging against Shein, with the court finding that “while the potential harm to Temu’s third-party suppliers is troubling,” Temu, nonetheless, failed to show that “substantial and serious harm will befall these suppliers” should their identities and the contents of their declarations about Shein’s alleged use of their product imagery be disclosed. However, the immediate impact of the court’s decision did not last long, as Judge Timothy Kelly of the U.S. District Court for the District of Columbia agreed to stay his day-old order for a day to allow Temu to consult with its client representatives, “many of whom are based in China.”
Some Background: Temu lodged a wide-ranging lawsuit against Shein in December on the heels of the ultra-fast-fashion retailers settling rival lawsuits. In its complaint, Temu alleged that China-founded, Singapore-based Shein has engaged in a “mafia-style” scheme to intimidate suppliers and abuse the U.S. legal system in order to “illegally interfere with Temu’s business.” Specifically, Temu claims that in response to its success in the U.S., Shein “hatched a desperate plan to eliminate the competitive threat” posed by its rival. In addition to interfering with its supply chain, Temu alleges that Shein is also “manipulating the U.S. Copyright Office, misusing the Digital Millennium Copyright Act (‘DMCA’) procedures designed to protect legitimate rights holders, subverting the U.S. legal process to disrupt Temu’s operations and damage Temu’s valuable brand, and [engaging in] the unlawful copying of Temu’s intellectual property.”
On the heels of filing suit, Temu sought a preliminary injunction to enjoin Shein from abusing the DMCA for the duration of the litigation and require it to provide proof to Temu to support the validity of its existing DMCA takedown notices. (Temu asserts in its complaint that Shein is abusing the DMCA by submitting “scores of meritless takedown notices that allege, without the required good-faith basis, that photographs of products for sale on Temu’s site are infringing copyrighted material.” These notices “all but require Temu to promptly remove the photographs and related products from its site, which harms both Temu’s business and that of its third-party suppliers,” the plaintiff asserts.)
In addition to the injunction, Temu also moved to seal – and designate as “outside attorneys’ eyes only” – certain materials accompanying its motion for a preliminary injunction in order to restrict Shein’s outside counsel from sharing those materials with anyone at Shein.
Among the materials that Temu is looking to shield from Shein? The entirety of declarations from five of Temu’s third-party suppliers in China who claim to own the copyrights to photographs that appeared on Shein’s website without their permission. “In two such cases, the suppliers also assert that photographs accompanying their products for sale on Temu’s website were the subject of meritless DMCA takedown notices that caused the removal of those products from [Temu’s] site,” per Temu. It also wants the court to seal the full declaration of an attorney it hired to interview those suppliers, as well as eight other suppliers in China “who were unwilling to execute declarations [under their own names] … because they fear retaliation from Shein.”
For its part, the attorney’s declaration “recounts how, according to the third-party suppliers, Shein has been interfering with their copyrighted photographs and has sought to dissuade and intimidate them from working with Temu in various ways,” the court noted.
In an order on January 29, Judge Kelly denied Temu’s motion to seal and to designate the materials as “outside attorneys’ eyes only” – albeit without prejudice – after finding that Temu “has not satisfied the test for the drastic relief it seeks.” Setting the stage, Judge Kelly “acknowledges that … Temu alleges in the complaint that Shein is engaging in a far-ranging effort to intimidate its third-party suppliers and retaliate against them for doing business with Temu.” If these allegations are, in fact, true, the court said that “it would be understandable if the suppliers here were reluctant to either sign their own declarations or say more in them.”
Even so, the court asserted that it must consider the impact on Shein if it were to grant Temu’s request to seal and designate the material at issue as “outside attorneys’ eyes only,” since Temu bases its preliminary injunction motion on the information in these declarations. “And Temu can hardly quarrel with the general proposition that because it has placed that information ‘at issue,’ Shein is ‘entitled to confront and contest’ it.”
While Temu has argued that Shein “need not know the identity of or other information about” the third-party suppliers because it “need only provide proof of its ownership” of the copyrighted works referred to in the material at issue to rebut Temu’s claims, the court sided with Shein. “The Court agrees with Shein that its ability to respond to the [pending] preliminary injunction motion would be prejudiced if the court granted Temu’s request, reinforcing the need for Temu to show substantial, serious harm,” Judge Kelly held.
Further siding with Shein, the court said that “it seems obvious that to keep from Shein the material at issue, including all the particulars of the allegations that Temu has put before the court [by way of the declarations at issue] – even if disclosing them to Shein would hint at some of the suppliers’ identities or confirm their involvement – would hamstring its outside counsel’s ability to investigate and counter them.”
TLDR: “The Court is sympathetic to the concerns raised by Temu’s motion. But Temu has not shown the requisite ‘substantial and serious’ threat of harm necessary to justify restricting the ability of outside counsel to consult their client about the material at issue. And weighing the effects of the restriction on Shein’s ability to rebut the allegations against it and the centrality of those allegations to Temu’s motion for a preliminary injunction – which though arguably of ‘limited scope’ would still be an ‘extraordinary remedy’ – the Court finds that Temu has not justified an “outside attorneys’ eyes only” designation for the material at issue.”
For “many of the same reasons,” the court also denied Temu’s requests that the material at issue be placed under seal. Judge Kelly subsequently signed off on Temu’s unopposed request to stay for one day the release on the public docket of the documents it sought to be filed under seal.
A spokesperson for Shein told TFL in December, “We believe this lawsuit is without merit and we will vigorously defend ourselves.”
THE BIGGER PICTURE: Temu’s lawsuit against Shein comes as the two parties continue to face off in the U.S. market, where they have overtaken competitor brands like H&M, Fashion Nova, Forever 21, and Zara in amassing revenue and market share, alike. Shein – which confidentially filed paper work to publicly list on a U.S. stock market in November with an IPO expected this year – was the earlier mover in the U.S. market, becoming the most downloaded shopping app in the U.S. in May 2021 and the most downloaded mobile app in the U.S. in any category a year later, overtaking the likes of Amazon and Instagram. However, Temu has swiftly found its footing in the market, proving a significant threat to Shein’s dominance. In fact, as Temu asserts in its complaint, its entrance and success in the U.S. market has reportedly caused Shein’s valuation to fall by over $30 billion.
The case is WhaleCo Inc. v. Shein Technology LLC, 1:23-cv-03706 (D. DC.)
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