Racketeering and Copyright: Understanding the Shein Lawsuit

The Chinese-based fashion brand Shein is both one of the most famous and infamous companies in the industry.

The brand is well-known for its low prices and ability to keep up with fast-moving trends. However, according to many, those low prices come with a serious dark side.

Most prominently, this has included allegations that Shein exploits forced labor, an issue that may lead to the delay of a planned initial public offering (IPO) sometime this year. The company also faces criticism over its environmental impact, allegations it faces alongside the whole of the “fast fashion” industry. 

However, fashion designers, artists and other rightsholders have also expressed their frustration with Shein. Many have complained that Shein simply ripped off their designs, but have struggled to take any action because fashion is considered a useful article and enjoys little, if any, protection under the law

That frustration reached something of a zenith last week as three designers filed a lawsuit against Shein alleging copyright infringement of their designs. They highlighted several instances where Shein was marketing and selling designs that were either identical or nearly identical to their creations. As such, they are suing for both copyright and trademark infringement.

However, the lawsuit came with a third claim that is rare in copyright cases: Alleged violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act. 

According to the lawsuit, the RICO claims were necessary because Shein uses a corporate structure that deliberately attempts to hide the source of any alleged infringement, making it impossible to enforce copyrights and trademarks. 

As such, the artists are seeking both unspecified damages and injunctive relief to prevent further infringement and racketeering activity.

This raises a simple question: Just how likely is this lawsuit to succeed? To answer that, we have to look at the arguments at play.

The Basics of the Case

The lawsuit was filed by three independent artists, Krista Perry, Larissa Martinez and Jay Baron. They allege that Shein copied designs and used them on posters, clothing items and other goods.

Right off the bat, the lawsuit skips the aforementioned issue, that works of fashion are considered useful articles and have little, if any, copyright protection. The lawsuit instead focuses on works of art that were then printed on top of those useful articles.

These designs include a floral pattern, a “Make it Fun” poster and an embroidered name tag that was included on a pair of overalls among other items.

However, the lawsuit goes deeper, alleging that Shein operates through a convoluted series of shell companies and subsidiaries in order to hide who exactly is responsible for the infringement.

The lawsuit alleges that, in the past, when confronted with copyright infringement issues, the company would direct the complainant to a “third party” company that the lawsuit alleges is actually a company acting on Shein’s behalf.

To support that, the lawsuit includes this chart that highlights some of the hierarchy of Shein’s corporate structure. 

As such, the plaintiffs argue that this amounts to racketeering, prompting them to file the claim under the RICO Act.

What is Racketeering?

Note: My understanding of racketeering is extremely limited, and this is not an area of law I have any expertise in. Though I’ve made every effort to ensure this information is accurate, please treat this section accordingly. 

The RICO act is well-known to most people in the United States. However, its fame comes from the criminal side of the law, which was routinely used to fight organized crime.

However, this case looks at the civil side of the RICO Act and is using it specifically to target alleged copyright infringement.

The full definition of racketeering under the law covers a wide variety of acts, including copyright infringement. But the basic idea is that racketeering is a “pattern of illegal activity that is carried out in furtherance of an enterprise.”

On the criminal side of things, the RICO Act has generally been used to target higher ups in criminal organizations who, though rarely directly responsible for crimes carried out in the name of the organization, both ordered and benefited from those crimes.

The basic argument in the Shein case is that Shein, through its subsidiaries, amounts to a “racket” that has the goal of committing widespread copyright infringement while shielding the main company from liability.

As such, the artists hope to hold Shein itself responsible, even if the actual infringement was carried out by “independent” subsidiaries.

Whether this argument will work is what remains to be seen. Shein has already said that it plans to defend itself in this case, and the legal fight could take many years. 

Unfortunately, we don’t have a great deal of other case law to look at. This is a very rare combination, and I was unable to find another case where an alleged racket was sued for copyright infringement.

Needless to say, this is going to be an important one to watch, and it may have implications for a variety of companies. After all, it’s likely that Shein will argue that it is protected under the Digital Millennium Copyright Act (DMCA), which protects services that host content on behalf of third parties. 

However, the lawsuit claims that Shein’s “third parties” are either just subsidiaries of the main company or otherwise in collusion with Shein to carry out the infringement. As such, this could provide an exception to the protections of the DMCA depending on the path this case takes.

However, such a prediction along those lines is extremely premature, as Shein has not yet responded to the lawsuit. Instead, these are possibilities to be on the lookout for as the case unfolds. 

Bottom Line

Without a doubt, the fashion industry will be watching this case very closely. Shein is a major brand and, even if its reputation is not the brightest, there’s no doubt that it is a juggernaut in the space.

However, those that follow copyright more broadly will also be watching this case closely as well. Not only is the argument a novel one, but it could have major implications for the DMCA and other areas of copyright law.

In the end, this case is a nearly impossible one to predict. There’s simply little, if any, cases similar to it. There’s no doubt that this is a very bold tactic. However, it makes sense given how frustrated other creators have been with Shein and the seemingly widespread infringement on its site and app.

This is definitely going to be a case to watch very closely, regardless of how much you personally care about fashion. 

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