Shein Accused of ‘Criminal’ Activity in Bombshell RICO Lawsuit
A lawsuit filed Tuesday claims Shein violates the Racketeer Influenced and Corrupt Organizations Act, better known as RICO.
This latest legal action marks an escalation of the myriad lawsuits that scores of brands and artists have filed against the Chinese fast-fashion giant for trademark infringement in recent years.
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In the 52-page complaint, plaintiffs Krista Perry of Worcester, Mass., and Jay Barron and Larissa Martinez of Los Angeles, represented by attorneys Jeffrey Gluck and David Erikson, claim that Shein infringed upon their trademarks in the first five counts of the suit filed in the U.S. District Court of California’s Central District. Martinez is CEO and owner of “Miracle Eye, ” a Los Angeles company designing and producing
made-to-order clothing.
Usually used by prosecutors as a means of freezing assets of organized crime syndicates, RICO statutes can also apply to civil complaints, the attorneys argued, citing the “civil prong of the Racketeer Influenced and Corrupt Organizations Act, which was designed to address the misconduct of culpable individual cogs in an larger enterprise.”
“It is well established that egregious copyright infringement (of the type alleged here, and of the type referenced in other similar cases against Shein) constitutes racketeering,” the suit reads.
A 2005 amendment to the federal RICO law applies in cases of “criminal infringement of a copyright,” which according to 17 U.S.C. 506(A) and 18 U.S.C. 2319, must contain the elements of “willful infringement for the purposes of commercial advantage or private financial gain.”
Another requirement for a RICO claim is that the offending party is not just an individual or business but a criminal organization, which describes Shein’s behavior, according to the lawsuit, as the company’s misconduct is “committed not by a single entity, but by a de-facto association of entities. And just as intended by Congress, the same decentralization that facilitates Shein’s criminal infringement and other racketeering activity, renders individual components of the enterprise, such as Defendants, liable under civil RICO,” according to the complaint.
The complaint calls into question how exactly Shein decides which products to copy.
“Although its details and precise methods are secrets, it’s possible to infer certain facts about Shein’s algorithm by looking at its results,” the complaint reads. “Without investigation, it’s impossible to say how the Shein algorithm produces its results—how a design for a blanket or overalls finds its way from a designer’s modest website to being cut and sewn in a sweatshop in Gauangzhou…”
Plaintiffs often win settlements from Shein, including Jacksonville, Fla. artist Maggie Stephenson, whose $100 million lawsuit accused the Temu rival of stealing her “One is Good, More is Better,” art piece for a clothing line. Stephenson settled with Shein for an undisclosed sum on May 10 and artist Jen Stark, who is represented by Gluck, has an outstanding lawsuit pending against Shein, filed in August last year.
Another case against Shein filed in November by Gluck on behalf of Cookies, a cannabis-inspired apparel businesses, was thought to be a game-changer because it argued not only trademark infringement, but counterfeiting, too. Counterfeiting, if proven, would have rendered three times the monetary judgment. A civil RICO verdict would also provide a higher judgment. Gluck iterated to Sourcing Journal that the two filings are separate, though both it and the Stark case are referred to in Tuesday’s filing as evidence of a pattern of infringing behavior.
On April 4, Gluck filed an amended complaint in the Cookies case in which the word “counterfeit” disappeared from the title and its usage in the complaint was reduced from 22 instances to just two. This was believed to be due to a discrepancy in Cookies’ trademark status that had nothing to do with Shein.
The word “criminal” appears 23 times in Tuesday’s lawsuit, each time used to accuse Shein of being a “criminal” operation, including lines that read: “Defendants recognize the liability exposure for their obvious counterfeiting and willful and criminal infringing activities,” “…intentionally and criminally infringing Plaintiffs’ and others’ copyrights for massive financial gain,” “…a systematic and continuous pattern of criminal copyright infringement,” “…continuous predicate acts of criminal copyright infringement make up a continuous pattern and pose a threat of continued activity.”
The plaintiffs are seeking past and future damages—multiplied by three—legal fees, and injunctive relief to “prevent further racketeering activity.”
The word “racketeering” appears 18 times in the complaint.
A Shein spokesperson said the company doesn’t comment on pending litigation.