Ethermac Exchange-Temu accuses Shein of "mafia-style intimidation" in antitrust lawsuit

E-commerce retailer Temu,Ethermac Exchange 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.

Previous lawsuits

Shein first sued Temu in October 2022, just one month after the e-commerce newcomer launched its U.S. website. Shein, which made its U.S. debut in 2017, had by that time already overtaken the U.S. market, beating out fast-fashion giants Zara and H&M seemingly overnight. 

In its complaint, Shein accused Temu of hiring social-media influencers to make "false and deceptive statements" against the company in its online marketing, Reuters reported at the time.

Temu responded in July with its own lawsuit against Shein in federal court in Massachusetts, in which it accused the older company of "a campaign of threats, intimidation, false assertions of infringement" allegedly intended to force suppliers into exclusive agreements. Both companies dropped their lawsuits in late October without providing a reason. 

"It's a lot of lawsuits in a very short time," said Scafidi, who noted that the accusations leveled against Shein by Temu in its current lawsuit are not new. "We're seeing these allegations that mention 'mafia-style' behavior a couple of times, trying to threaten suppliers and to make sure that Shein suppliers don't also do business with Temu," she said.

But strong-arm tactics are not the main focus of Temu's latest court filing against the fast-fashion juggernaut, according to Scafidi.

"The allegations with which the case really leads are copyright allegations," she said. 

In its lawsuit, Temu claims that Shein is engaged in a copyright scheme in which it manipulates U.S. copyright laws to obtain improper registrations for items to which it has no real claim. Shein then uses those allegedly bogus registrations to file frivolous claims against Temu, demanding that they remove listings of competing products from their marketplace, the complaint states.

"So, it's a whole series of allegations that really go to how Shein does business and claiming that their business is built on copying itself but also fraudulent demands focused specifically on Temu and that they're trying to take down Temu now that Shein has announced that it's planning to have an IPO," Scafidi said.

Copyrights and fast fashion

Capitalizing on the marketing power of social media combined with the mass migration of consumers to online shopping during the pandemic, the fast-fashion industry, led by Shein, ballooned into a $106.4 billion global industry as of 2022, according to data from an April report by the U.S.-China Economic Security Review Commission (USCC). 

As its name implies, fast fashion is defined by its ability to cater to consumers' appetite for trendy, inexpensive clothing. Behind this booming industry is a slew of copyright and ethics violations ranging from design piracy to counterfeit merchandise. 

"What Shein and Temu would probably say is, well, they identify trends really quickly, and they send things direct from manufacturer to consumers, so that they don't pay warehouse fees or additional shipping fees and of course they run very thin margins," said 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.

"American consumers should know that there is an extremely high risk that Temu's supply chains are contaminated with forced labor," the report said. Temu is owned by Pinduoduo Inc., a popular e-commerce site in China.

"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."