Why is Shein under investigation? Charges explored amid RICO Lawsuit

Chinese fast fashion retail giant Shein is accused of criminal activity in a Racketeer Influenced and Corrupt Organizations Act (RICO), in a lawsuit filed on Tuesday, July 11, 2023.

According to the 52-page lawsuit, the brand is committing "intellectual property theft from U.S. designers large and small."

The legal action comes after a score of complaints and lawsuits were filed recently against the company by artists and brands.

According to the Court Listener, the lawsuit, Perry, et al., v. Shein Distribution Corp., et al. was filed by three independent designers - Krista Perry, Larissa Martinez and Jay Barron - in a California Court.

"(T)here is no Coco Chanel or Yves Saint Laurent behind the empire. Rather, there is a mysterious tech genius, Xu Yangtian aka Chris X (who made it) the world’s top clothing company through high technology, not high design. ..." explain the platinffs.

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What did the RICO lawsuit accuse Shein of? More about the lawsuit

Accusing it of copyright and trademark infringement, the plaintiffs claimed the fashion giant and its related entities like Roadget Business and Zoetop Business of producing, distributing and selling "exact copies of their creative work," claiming it to be a "part and parcel of Shein’s ‘design’ process and organizational DNA."

Elaborating on the same, the lawsuit alleges that the company has a "secretive algorithm" that benefits it by predicting "fashion trends" and overlaying it with a "corporate structure" like "production and fulfillment" schemes to appropriate a particular design or art of an independent designer.

These "copies," while generating "millions of dollars" in sales for the brand, significantly damage the career of independent designers.

The aforementioned three designers assert that they have "suffered and will continue to suffer substantial damage "to their business and face "a diminishment in the value of their designs and art, their rights and their reputations."

While in-depth investigations need to be conducted to understand how the algorithm exactly works, the lawsuit describes the distribution model to avert Af any significant legal trouble.

For every new product added to the website, its initial production is kept as low as 100-200 per SKU (generally it's around 1000). That's done to wait to "see if anybody complains that the design was stolen," and if it's the case, Shein can quickly settle with them.

Unlike Nike, a big brand with specialists and software to look out for infringements and resources to fight, small or independent designers go unnoticed, allowing the brand to "reap the benefits." If customer demand justifies it, the product is reordered.

The lawsuit further explains that Shein is a network of several connected entities. This decentralization and confusing corporate structure "aids in its efforts to avoid liability" if the company receives a copyright or trademark lawsuit:

"(Its) first line of defense generally couples removing the product from its sites with blaming the misconduct on another actor (Shein entity)."

In cases where the party is "unrepresented" or has "unsophisticated attorneys" they assume that the actor company is "fully independent of the entity being sued."

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No representative from the retail giant has commented on the lawsuit yet.