Shein’s lawsuit against Temu ‘could cause market exit’

The legal battle between Shein and Temu could disrupt the fast fashion market, potentially leading to the exodus of one of the retailers.

According to legal experts Adams & Adams, if proven, this battle could set a precedent, especially in an industry in which the line between following trends and infringing on intellectual property is often blurred.

Shein, the online retailer known for its rapid production of fashion-forward, affordable clothing, filed a new lawsuit against its competitor, Temu, last week.

The suit, filed in a Washington federal court, accuses Temu of stealing designs, copying product images and engaging in other fraudulent activities to undercut Shein’s market position.

The complaint alleges that Temu, a platform owned by Chinese e-commerce giant PDD Holdings, has subsidised its low prices by encouraging sellers to offer counterfeit items, stolen designs and substandard products.

These allegations are not new. Shein and Temu have previously sued each other in US courts over similar claims, but this latest lawsuit represents an escalation in their ongoing feud.

Adams & Adams legal experts Werina Griffiths and Nontando Tusi say the wide-ranging claims in Shein’s suit made the case particularly noteworthy.

The experts pointed out that while intellectual property disputes are common in other design industries, such as automotive and furniture, this case stands out in the fashion industry due to the scope of Shein’s allegations.

Unsustainable model

The lawsuit not only focuses on copyright and trademark infringement, but also accuses Temu of misappropriating trade secrets, poaching employees and suppliers and engaging in deceptive business practices.

“Shein claims that Temu’s business model only works because it is based on the alleged unlawful activities,” Griffiths and Tusi said. “On Shein’s version, should Temu no longer be allowed to operate in that manner, coupled with the impending import duties, its business model should be unsustainable and it may have the result of one player exiting the market.”

Shein has previously faced numerous lawsuits from brands and designers accusing the company of stealing their designs and selling copied items.

Temu has also countered with its own lawsuits, including allegations that Shein employs “mafia-style intimidation” tactics to dominate the supply chain and prevent manufacturers from working with Temu.

Despite the ongoing legal battles, both companies have continued to grow their market share, particularly in the US. Temu has gained popularity by offering extremely low prices, a strategy that Shein claims is only possible through unethical business practices.

Stern warning

Griffiths and Tusi emphasised that the outcome of this lawsuit could send a strong warning to other companies about the consequences of unethical business practices in the competitive fast-fashion industry.

“A finding against Temu should send a stern warning to other companies regarding the manner in which business is conducted in an effort to compete,” they said.

The lawsuit could potentially disrupt Temu’s business model, especially in light of the additional challenges posed by impending import duties, they said. If Shein’s allegations are proven in court, Temu could face financial and operational setbacks.

Griffiths and Tusi said fashion companies faced challenges in protecting designs due to copyright law limitations to protecting the expression rather than the idea or style itself.

Trademarks offer a clearer path for protection by allowing the registration of distinctive brand elements, which can help in identifying and addressing unauthorised use.

“The battle still has a long way to go however, and, at the very least, it is clear that the competition is rife and the players are willing to swing big punches for their market share.”

goban@businesslive.co.za