Chinese clothing retailer Shein is facing further legal challenges as a RICO lawsuit has been filed against the company, highlighting its alleged systemic theft of clothing designers’ intellectual property, likened to racketeering.
The lawsuit, initiated by three clothing designers, accuses Shein of extensively utilizing “identical replicas of copyright-protected graphic designs.” It further asserts that Shein has accumulated substantial profits by persistently committing numerous copyright infringements, forming a continuous, long-standing pattern of racketeering that shows no signs of diminishing.
In response to these allegations, Shein released a statement on Friday emphasizing its commitment to addressing infringement claims promptly, asserting that they take all such accusations seriously. They pledged to defend themselves against the lawsuit and any unfounded allegations against them.
Shein’s legal woes are compounded by its potential pursuit of an initial public offering in the United States. Additionally, the company faces mounting pressure from lawmakers who raise concerns about its possible use of forced labor from China’s Uyghur population.
A bipartisan Congressional report published in June states that Shein and another Chinese retailer named Temu were accused of neglecting to maintain a substantive compliance program required by U.S. law. This law prohibits any imports from China’s Xinjiang region until retailers can provide assurances that forced labor was not used in the making of their products and evidence that products were manufactured without forced labor.
In addition, the report implicated Shein and Temu in exploiting a trade law loophole known as the “de minimis” provision. By directly shipping small packages worth less than $800 to individual consumers rather than using a United States distributor, the companies have been able to circumvent scrutiny of their manufacturing and trade practices.
Temu, a subsidiary of Pinduoduo Inc., a renowned Chinese e-commerce platform, made its entry into the U.S. market last year. Since its launch, it has gained significant traction among consumers by providing affordable merchandise ranging from clothing to household items sourced from sellers based in China.
Republican Representative Mike Gallagher highlighted that the two companies had built vast enterprises by capitalizing on the de minimis loophole in import regulations. This enabled them to avoid import taxes and evade scrutiny regarding the millions of products they sell to American consumers.