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Online Retailer Temu Sues Rival Shein, Alleging ‘Mafia-Style Intimidation’

The Chinese-owned online marketplace Temu has sued its rival Shein, alleging that the fast fashion giant “bullied, intimidated, and even detained” suppliers in China as part of a campaign of “mafia-style intimidation”.

Reigniting an acrimonious legal battle, Temu accused Shein of trying to “illegally interfere” with its business and going so far as to confiscate merchants’ cellphones during meetings to obtain access to confidential information.

Suppliers doing business with Temu have been threatened with penalties by Shein, WhaleCo Inc – which operates in the US as Temu – alleged in a 100-page filing to the US district court for the District of Columbia on Wednesday.

In a statement, Shein described the lawsuit as “without merit”, and vowed to defend itself. The company, one of the global leaders of fast-fashion e-commerce, is gearing up for a highly anticipated initial public offering, having reportedly filed confidential paperwork with the US securities regulators last month. The listing could take place as soon as next year.

It comes just two months after the operators appeared to call a truce to their fierce legal disputes. Both applied to end legal cases against each other in October, requesting that they be dismissed “without prejudice” by the respective judges.

Shein was founded in China in 2012 by the entrepreneur Chris Xu, but is now headquartered in Singapore. By 2022, its valuation had soared to a reported $100bn, making it the third most valuable startup in the world, although this is said to have fallen significantly during a fundraising round earlier this year.

PDD Holdings, which owns Pinduoduo, a Chinese discount e-commerce giant, launched Temu in the US in 2022. The platform is based in Boston, Massachusetts.

As part of what it described as a “desperate plan to eliminate the competitive threat”, Temu alleged in its new complaint that Shein had misused intellectual property legislation to “disrupt Temu’s operations and damage Temu’s valuable brand” and unlawfully copy its intellectual property.

Temu said it was preparing a major advertising campaign around Super Bowl LVIII in February. The campaign was “bound to increase traffic to Temu’s app and website”, the company said, citing the impact of a similar effort earlier this year.

Ahead of this upcoming ad campaign, Temu claimed that Shein “has resorted to even more desperate and coercive measures, including physical detention of merchants who dare to work with Temu, personal threats, and illegal seizures of merchants’ personal devices to obtain access to the merchants’ Temu accounts and Temu’s confidential information and trade secrets”.

Temu accused Shein of overseeing an “ongoing program of summoning Temu’s suppliers on false pretenses to Shein’s offices, detaining those suppliers’ representatives in Shein’s office for up to 10 hours, seizing these Temu sellers’ phones, searching their phones for Temu sales, commercial, and other financial information without permission, demanding the sellers’ chat histories and log-in credentials for their Temu account, compelling them to sign documents against their will, and threatening them with extensive penalties and termination of their Shein contracts for selling on Temu.”

It alleged that “several suppliers” which had listed products on both Temu and Shein reported that their representatives were called into an “inspection room” in Shein’s offices in Guangzhou, China. In recent weeks representatives were summoned by Shein to talk about “potential collaborations”, only to be threatened by Shein’s staff, Temu claimed.

Supplier representatives were “physically overwhelmed” by Shein, according to Temu’s complaint, which said that multiple Shein employees were stationed “around the merchant in a small space during the ensuing interrogation”.

Shein’s “persistent and increasingly aggressive use of anticompetitive conduct, coercion, and threatening behavior necessitates this lawsuit”, Temu added.

A Shein spokesperson said: “We believe this lawsuit is without merit and we will vigorously defend ourselves.”

In a matter of months, Temu quickly made its mark in the US – and its business has boomed. Earlier this year spending on Temu overtook spending on Shein, according to Bloomberg Second Measure, which analyzes credit and debit card transactions, with Temu gaining a 20% lead in May.

Temu’s lawsuit described Shein’s public brand as a “shiny façade” that masks the company’s actions behind the scenes, accusing the company of “copying trendy designs” and reselling them. “Shein is not a brand; it is a glorified label maker,” it said.

Source : The Guardian