E-commerce retailer Temu, known for its spinning coupon wheel and astonishingly cheap items, is accusing fast-fashion giant Shein of dirty tactics to quash competition.
In a 100-page complaint filed on December 13 at a federal court in Washington D.C., Whaleco Inc., which operates as Temu in the U.S., claimed that Shein has been using "mafia-style intimidation of suppliers," summoning those it believes to be working with Temu to its offices, "falsely imprisoning" merchant representatives for hours, seizing their phones and threatening to impose penalties for doing business with its rival.
The lawsuit is not the first time the two rivals, both founded in China, have been locked in a legal battle, as they compete against each other for American shoppers.
"They've sued each other overseas as well, but this is at least the third lawsuit just here in the U.S.," Susan Scafidi, founder and director of Fordham University's Fashion Law Institute, told CBS News.
Shein and Temu's Legal Battle
In a series of legal disputes, Shein and Temu have been engaged in a fierce fight over the U.S. market. Shein, a prominent e-commerce player that entered the U.S. market in 2017, quickly surpassed fast-fashion giants Zara and H&M in popularity. In October 2022, Shein filed a lawsuit against Temu, accusing the company of using social-media influencers to spread false and deceptive statements about Shein in its online marketing.
In response, Temu filed its own lawsuit against Shein in July, alleging that the older company engaged in a campaign of threats, intimidation, and false assertions of infringement to pressure suppliers into exclusive agreements. However, both companies unexpectedly dropped their lawsuits in late October without providing a reason.
According to legal expert Scafidi, the current lawsuit filed by Temu against Shein focuses primarily on copyright allegations, rather than strong-arm tactics. The allegations suggest that Shein has violated Temu's copyright.
In a recent lawsuit, Temu has accused Shein of participating in a copyright scheme. According to Temu, Shein manipulates U.S. copyright laws to obtain improper registrations for items it has no legitimate claim to. The complaint alleges that Shein then uses these allegedly fraudulent registrations to file baseless claims against Temu. Shein demands that Temu remove listings of competing products from their marketplace.
"The lawsuit includes a series of allegations that question Shein's business practices. It suggests that Shein's success is built on copying itself and making fraudulent demands, specifically targeting Temu. This comes after Shein announced its plans for an IPO," explained Scafidi.
Copyrights and the Rise of Fast Fashion
During the pandemic, the fast-fashion industry, led by Shein, experienced significant growth. Capitalizing on the marketing power of social media and the shift towards online shopping, the industry reached a value of $106.4 billion globally in 2022, according to a report by the U.S.-China Economic Security Review Commission (USCC).
Fast fashion is known for its ability to provide trendy and affordable clothing to consumers. However, behind this booming industry lies a range of copyright and ethical violations, including design piracy and counterfeit merchandise.
"Shein and Temu may argue that they quickly identify trends and deliver products directly from manufacturers to consumers, eliminating warehouse and additional shipping fees. However, this business model often operates on thin profit margins," added Scafidi.
"But — but, those critical of Temu and Shein would say ... they're also copying and not designing, they're probably engaged in various forms of labor exploitation, and, by the way, they have been very, very effectively exploiting a loophole in U.S. tariff law to avoid lots of import tariffs," she said.
Tariff loophole
A congressional report published in June said both Shein and Temu were avoiding import taxes through a century-old trade rule — known as de minimis — that allows them to import packages valued at less than $800 as long as they are packaged and shipped directly to consumers.
The report by the House Select Committee on the Chinese Communist Party also offered a blistering critique of the retailers, with lawmakers accusing Temu of failing to maintain "even the façade of a meaningful compliance program" that seeks to prevent goods made by forced labor from being sold on its platform.
"That is something that we want to be very careful about," Scafidi said. "And Congress is just not sure that Temu and Shein are taking that seriously."
