Ariana McLemore
NEW YORK (Reuters) – New European Union rules tightening scrutiny of intellectual property rights could lead to increased trademark scrutiny of a wide range of products, including $5 Shein shirts, $20 dresses and $15 shoes.
China-founded e-commerce giant Shein is moving ahead with an IPO in London after EU digital rules coming into force at the end of August will require Shein to prohibit listings of products that infringe intellectual property rights and to stop listing and selling counterfeit goods to its 108 million monthly active users in the region.
Shine faces more than 90 lawsuits alleging it stole other companies' designs and products, according to U.S. documents seen by Reuters. Sixteen U.S. attorneys general also wrote in August to the Securities and Exchange Commission to require an independent audit before allowing Shine to go public, saying the company “frequently blurs the line between intellectual property and copyright.”
How does SHEIN design their products?
Analysts and investors say SHEIN's business relies on a network of suppliers, mostly based in China, bucking traditional manufacturing trends by accepting small initial orders and then scaling up as demand demands. Most of the clothes it sells are made by 5,400 suppliers in Guangzhou, China.
Peter Perno-Day, Shein's head of strategy and corporate affairs for North America and Europe, said Thursday at an e-commerce conference that the company's design speed and agile approach to production give it a competitive advantage over other global retailers.
A company spokesperson said that in-house staff, outside artists and third-party suppliers around the world create unique product designs for SHEIN.
Pernod-Day said Shain's design process is “often misconstrued as being some kind of AI-based system,” referring to artificial intelligence, and that the company uses “200 to 250” in-house designers per product category.
Pernod Dei said the in-house team uploads designs into a merchant management system, which allocates “materials, inputs and different types of fabric” to suppliers for production.
Why is SHEIN being accused of copying other people's designs?
Shane's design practices have long been criticized by plaintiffs' lawyers for a tendency to copy other companies' designs.
“What really stands out about Shein is the range and number of copyright-infringing styles they've sold over the years,” said Scott Barrow, an attorney who has sued Shein multiple times for copyright infringement on behalf of graphic designers and digital artists.
Shein denies the allegations that it plagiarizes other companies' designs or products. It says that its suppliers and third-party sellers must prove to Shein that their products do not infringe on the rights of other brands. The third-party sellers' products are sold on Shein's marketplace and include products from brands other than those owned by Shein.
Shein's system provides suppliers with “real-time” updates on sales and trending products, allowing them to forecast future orders and demand.
How does SHEIN spot counterfeit products today?
Shain said it is committed to complying with the EU's Digital Services Act. The company did not disclose what changes it has made to its operations since April, when the EU issued guidelines calling Shain a “very large online platform.”
Shein announced on June 4 that it has been using artificial intelligence to spot potential copyright infringement in product posts since 2020. From 2021 to 2023, Shein reported a double-digit percentage decrease in copyright infringement claims, a Shein spokesperson added.
“The technology scans images of new products against our proprietary library of privileged IP, which contains prohibited products and elements,” a Shein spokesperson said. “We are also incorporating AI into other databases to enhance detection of potential infringements.” Shein declined to provide details about the databases.
During a 2021 court hearing in which Shane was accused of copying designs from swimwear manufacturer HVN, Shane's lawyers said the company employs a two-stage review process to prevent copyright infringement.
Shein's review process involves manual and digital elements, with human moderators checking designs and print materials for logos, trademarked symbols and brand names, Shein's lawyers said.
Shane has not disclosed how it developed the design of the lookalike fruit-print swimsuits, but its lawyers said that the company's infringement review process “did not uncover any products bearing the HVN wordmark” because the original swimsuits “did not use the circled R, which indicates that they were registered trademarks.”
(Reporting by Arianna McLemore in New York; Editing by Josie Kao)
