Shein is facing a new lawsuit alleging RICO violations and using shell companies to steal designs in the fast fashion industry.
Who owns Shein?
Shein was founded in 2012 by Chinese entrepreneur Chris Xu, also known as Xu Yangtian. Reports of his origins vary, with some sources suggesting he is a Chinese-American who studied at George Washington University, while others say he was born in Shandong in 1984 and studied at Qingdao University of Science and Technology.
The lawsuit highlights the significant challenge in bringing legal action against Shein due to its decentralized and complex organizational structure. He describes Shein as an ever-changing association of entities and individuals, making it difficult to pinpoint specific defendants. The lawsuit notes that even designers with legal representation face hurdles in identifying the proper party to sue, leading to reliance on discovery to clear up the matter.
To meet this challenge, plaintiffs allege violations of the RICO Act, which was specifically designed to tackle misconduct within larger corporations by holding individual participants accountable. The lawsuit claims that unrepresented litigants face significant obstacles to legal proceedings, while even prosecutors with strong cases struggle to identify suitable defendants.
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What happened to Sheina?
According to the lawsuit, Shein, a company known for producing high-volume fashion items, is accused of creating products that not only resemble copyrighted designs, but are exact copies. Shein has constantly faced criticism for inadequate working conditions and the presence of elevated levels of harmful chemicals in the clothing.
The lawsuit alleges that Shein intentionally engages in copyright infringement as part of its strategy of introducing an incredible 6,000 new items every day to satisfy its vast customer base. This alleged conduct is considered a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).
In other words, the lawsuit alleges that Shein systematically replicates the copyrighted graphic design without significant changes. It accuses the company of deliberately infringing intellectual property rights in order to maintain a high rate of product production and meet the demands of its millions of customers.
By framing Shein’s alleged copyright-infringing activities as RICO violations, the lawsuit implies that the company’s actions are not isolated incidents, but part of a larger scheme.
RICO provides a legal framework to address organized criminal behavior by allowing parties to file civil lawsuits and seek damages against individuals or organizations engaged in a pattern of illegal activity. In this case, the lawsuit alleges that Shein’s consistent copyright infringement constitutes such a pattern, potentially exposing the company to significant legal consequences.
What is a RICO Charge Shein?
The Racketeer Influenced and Corrupt Organizations Act (RICO) is a federal law established in 1970 as a means of combating organized crime. It covers a wide range of illegal activities, including racketeering, bribery and extortion.
The company has been accused of engaging in a systematic copyright infringement scheme in its quest to create 6,000 new products a day for its vast customer base. These actions allegedly constitute violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).
Accusing a company like SHEIN of RICO violations is a serious charge that can have a significant impact on its business. In response to these allegations, many Twitter users are speculating about the future of SHEIN and whether the company will shut down. This speculation has led some users to rush to buy on the platform, fearing that it may soon go out of business.
There are those who believe that these allegations finally expose the company’s unethical practices and take a skeptical or critical view of the situation. On the other hand, some users approach things with a light-hearted outlook and anticipate possible deep discounts when or if the company eventually closes.
Shein sued
On Tuesday, July 11, 2023, Shein, a prominent Chinese fast fashion retailer, was hit with a lawsuit accusing the company of engaging in criminal activity under the Racketeer Influenced and Corrupt Organizations Act (RICO).
The 52-page lawsuit alleges that Shein is involved in “the theft of the intellectual property of American designers, big and small.” This legal action follows a series of complaints and lawsuits filed against the company by various artists and brands.
The lawsuit, titled Perry, et al., v. Shein Distribution Corp., et al., was filed in a California court by three independent designers: Krista Perry, Larissa Martinez and Jay Barron, as reported by the Court Listener.
This latest lawsuit adds to the mounting legal challenges facing Shein, raising serious allegations of intellectual property theft and highlighting concerns about the company’s business practices toward American designers.
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Shein charged with RICO
Plaintiffs in the suit accused Shein and its related entities, such as Roadget Business and Zoetop Business, of engaging in copyright and trademark infringement. They claim that Shein is intentionally producing, distributing and selling exact copies of their creative work, which is allegedly ingrained in the company’s design process and organizational structure.
According to the lawsuit, Shein uses a secret algorithm that combines fashion trend predictions with corporate structure, including production and delivery schedules. This alleged approach allows the company to appropriate the designs or artwork of independent designers. While these copied designs generate significant sales and profits for Shein, they cause significant damage to the careers of independent designers.
Shein Lawsuit
The three designers involved in the lawsuit claim they have already suffered and will continue to suffer significant damage to their businesses. They claim that the value of their designs, artwork, rights and reputation is being diminished.
While a thorough investigation is needed to fully understand the inner workings of Shein’s algorithm, the lawsuit provides insight into the brand’s distribution model, which aims to avoid legal complications. Initially, Shein keeps production of each new product at a low volume of 100-200 per SKU (inventory unit), as opposed to the typical 1,000 units. This approach allows the company to assess whether complaints about stolen designs are emerging. If such complaints arise, Shein can quickly settle with the affected parties.
Unlike bigger brands like Nike, which have dedicated experts, software and resources to detect and actively fight infringement, small and independent designers often go unnoticed. This situation allows Shein to take advantage of his designs without facing significant consequences. If customer demand warrants it, Shein continues to reorder the product for resale.
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Categories: General
Source: HIS Education