Temu Says Shein is Engaging in “Mafia-Style” Scheme in New Lawsuit

Image: Shein


Temu Says Shein is Engaging in “Mafia-Style” Scheme in New Lawsuit

Temu has lodged a wide-ranging new lawsuit against Shein, claiming that the China-founded, Singapore-based ultra-fast-fashion titan has engaged in a “mafia-style” scheme to intimidate suppliers and abuse the U.S. legal system in order to “illegally interfere ...

December 14, 2023 - By TFL

Temu Says Shein is Engaging in “Mafia-Style” Scheme in New Lawsuit

Image : Shein

Case Documentation

Temu Says Shein is Engaging in “Mafia-Style” Scheme in New Lawsuit

Temu has lodged a wide-ranging new lawsuit against Shein, claiming that the China-founded, Singapore-based ultra-fast-fashion titan 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.” In the complaint that it filed with a federal court in Washington, D.C. on Wednesday, Temu claims that in response to Temu’s success in the U.S. market, Shein has “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 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.” 

In response to the competitive threat posed by Temu, “Shein created and implemented a scheme to interfere with Temu’s U.S. growth,” Temu’s corporate entity WhaleCo Inc. (hereinafter referred to as “Temu”) asserts in the 100-page complaint. At a high level, Temu states that it has become the target of “malicious and unlawful conduct” that comprises “a multi-faceted scheme,” which includes “at least the following” actions (emphasis courtesy of Temu) … 

– “Coercing thousands of suppliers to sign adhesion contracts allowing Shein to seize the suppliers’ worldwide intellectual property rights, through invalid assignments and often without the suppliers’ knowledge … [in order] to prevent suppliers from listing and selling similar products on Temu or other retail platforms”;

– “Relying on the illegally seized intellectual property rights and/or relying on knowingly false information” – including “knowingly false claims regarding ownership, publication, and backdated transfers” – in order to obtain “improper copyright registrations from the U.S. Copyright Office, located in this District”; 

– “Bombarding Temu with thousands of non-compliant and/or bad-faith Digital Millennium Copyright Act (“DMCA”) takedown notices, often alleging that a product sold on Temu’s marketplace has infringed the very rights obtained as a result of Shein’s supplier intellectual property seizures – even where Shein has no basis to establish that it owns the intellectual property it is purporting to enforce”; 

– “Further abusing the U.S. legal system by instigating and supporting dubious copyright infringement lawsuits against Temu, even though the named plaintiffs suffered no commercial injury, and even though Shein’s entire business model is based on stealing others’ intellectual property (with approximately 100 intellectual property infringement lawsuits filed against Shein and its affiliates in the U.S. alone)”; and

– “Leveraging its dominance in ultra-fast fashion (the product market on which Shein built its earlier success in the United States) to foreclose Temu from access to suppliers, through Exclusive-Dealing Agreements, mafia-style intimidation of suppliers, and anticompetitive pricing floor requirements.”

At the same time, Temu claims that in order “to boost its attempted pivot to a marketplace model, Shein has been infringing Temu’s valuable copyrights in its popular customer acquisition mobile games and has been copying Temu’s unique and distinctive trade dress, causing confusion in the marketplace and loss of goodwill for Temu.” In furtherance of this, Temu alleges that Shein has hired some of Temu’s “key marketing and advertising personnel who had access to highly-confidential information and know-how including for Temu’s trade dress that Shein copied.”

And most recently, Temu contends that Shein “has gone so far as to falsely imprison merchants doing business with Temu, including detaining merchant representatives in Shein’s offices for many hours, while Shein confiscated the merchants’ electronic devices, obtained access to proprietary Temu information through the merchants’ seller accounts,” thereby, giving rise to trade secret misappropriation, per Temu, all while “threaten[ing] the merchants with penalties for doing business with Temu.”

Not limited to slowing its growth in the U.S., Temu states that Shein’s “illegal scheme to disrupt [its] business cannot be separated from its public campaign to manufacture the false image of itself as a law-abiding corporate citizen.” In an effort to “shore up its public image and deceive U.S. regulators and intellectual property agencies located here in the Nation’s Capital,” Temu maintains that Shein “has gone to great lengths to convince the public that Shein respects intellectual property rights and champions the rights of the merchants who supply products for resale on Shein’s websites.” For instance, while Shein asserted in a 2022 “Sustainability and Social Impact Report” that “protecting intellectual property is one of [its] key priorities and a critical part of empowering independent designer talent,” the reality, according to Temu, is that Shein’s “interpretation of ‘protecting intellectual property’ is illegally seizing, fabricating, and weaponizing intellectual property rights to block competition.” 

With the foregoing in mind, Temu sets out an array of intellectual property-centric claims against Shein, accusing the company of lodging false DMCA takedown notices in violation of 17 U.S.C. § 512(f)), engaging in copyright and trade dress infringement, providing inaccurate information to secure more than two dozen copyright registrations, and misappropriating Temu’s trade secrets. Beyond that, Temu asserts that Shein has run afoul of Section 1 the Sherman Act by way of “exclusive-dealing agreements and loyalty attestations” that amount to “coerced agreements that Shein forces on suppliers,” and that are “anticompetitive, and unreasonably restrain trade in the relevant market,” and Section 2 by “engaging in [an] anticompetitive and exclusionary scheme” in the “ultra-fast-fashion market,” in which Shein has monopoly power, as well as the Clayton Act in connection with its allegedly anticompetitive scheme, which has “substantially lessened competition or tended to create a monopoly in the relevant market.”

Temu is also waging restraint of trade, monopolization, attempted monopolization, unfair competition, tortious interference, and abuse of process claims under the D.C. Code. It is seeking an array of equitable remedies, including injunctive relief, as well as monetary damages. 

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 in 2024 – 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. 

After facing off in rival lawsuits for much of this year, the parties seemed to make peace to some extent when they voluntarily dropped their respective suits in the two-pronged legal clash. Shein filed a lawsuit against Temu in December 2022, accusing its rival of “willfully and flagrantly” infringing its “exclusive and valuable trademark and copyright rights” in order to get ahead in the U.S. market, and Temu responded with a suit of its own, claiming that Shein engaged in a “scheme of coerced exclusivity, threats, intimidation, and direct financial punishments” in order to avoid “competing fairly and within the bounds of applicable law.” 

In joint stipulations of voluntary dismissal in October, Shein and Temu alerted federal courts in Massachusetts and Illinois that they were looking to dismiss the two cases – albeit without prejudice, bringing an end to those cases, but inevitably leaving the door open to future actions, such as the one at hand.

A spokesperson for Shein told TFL, “We believe this lawsuit is without merit and we will vigorously defend ourselves.”

The case is WhaleCo Inc. v. Shein Technology LLC, 1:23-cv-03706 (D. DC.)

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