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Shein hit with racketeering lawsuit for copying independent designers

Fast fashion retailer Shein is under legal fire again, but this time, a RICO claim could change how the company handles the lawsuit.
Shein hit with racketeering lawsuit for copying indendepent designers
Posted at 9:11 PM, Jul 13, 2023

The fast fashion brand Shein is the most visited online fashion retailer in the world, but a new lawsuit alleges its sense of style has been continuously stolen from independent designers.

On Tuesday, three designers filed a complaint against the China-based company for allegedly producing, distributing and selling exact copies of their work. The lawsuit, which was filed in a California federal court, claims the retailer's "pattern of systematic criminal intellectual property infringement" constitutes racketeering, which renders them liable under civil RICO.

This reproduction of other people's art is part of the company's "secretive algorithm," the complaint says, which works by determining fashion trends and creative imagery then reproducing small quantities of the exact work for Shein's website. Then it gauges the items' popularity and possibly orders more to be sold.

"Shein's design 'algorithm' could not work without generating the kinds of exact copies that can greatly damage an independent designer's career — especially because Shein's artificial intelligence is smart enough to misappropriate the pieces with the greatest commercial potential," the lawsuit states.

The plaintiffs — Krista Perry, Larissa Martinez and Jay Baron — said they were "as surprised as they were outraged" seeing their independent designs on Shein's website, as some were copyrighted and trademarked. They claim Shein's actions have and will continue to cause "substantial damage" in the form of loss of profits, diminished value in their work and more.

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"When Shein copies a small or independent designer, the most likely outcome (without brand protection specialists and specialized software on the lookout) is that the infringement will go unnoticed," the suit says. "Under those circumstances, Shein reaps all the benefits of stealing and featuring the design that its technology had identified as valuable enough to take."

When a designer does complain to Shein about their copyright, the lawsuit claims the retailer will blame the theft on third-party organizations, say the item had low sales and may respond with a low-ball settlement offer, like its offer of $500 when Perry complained.

This "confusing corporate structure" is partly why the allegations presented in the lawsuit were a challenge. The plaintiffs had to prove elements of the case related to "the closely guarded secrets of Shein's design process and labyrinthine corporate structure" which allows them to avoid liability.

"Shein is not a single integrated entity as it portrays itself — rather, it is an association-in-fact of a decentralized constellation of entities, designed to improperly avoid liability," the lawsuit states.

This complicated structure is why the plaintiffs have made the case a RICO claim, which is different than many other lawsuits the company has faced in recent years.

The RICO Act helps fight organized crime, but it can also help civilians file racketeering and copyright infringement claims against larger enterprises. The suit claims because Shein's misconduct "is committed not by a single entity, but by a de-facto association of entities" constitutes the RICO claim.

Shein was founded in 2008 by Chris Xu, the man the suit named as the "mysterious tech genius" behind the company's algorithm "about whom almost nothing is known." The site posts an average of 6,000 new items each day at low prices, and it was recently valued at more than $100 billion.

Besides copyright lawsuits, the company has come under fired for its alleged harsh working conditions, its effect on the environment and a 2018 data breach. An investigation also found unsafe levels of lead and toxic chemicals in some of its clothes — a presence common in fast fashion.

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