“Fast fashion” retailers have flooded the marketplace with cheap versions of name brand apparel. These companies make billions by quickly bringing the latest fashion trends to market, often stealing designs of other brands and artists. They use technology to commit these offenses, leveraging algorithms to help identify current market trends and popular designs.
Shein, one such predatory discount retailer, frequently faces intellectual property lawsuits as a defendant. Now, three artists are taking matters into their own hands by using a novel legal approach to fight back.
The three fashion designers filed a suit against Shein and its entities for extensive copyright infringement. Krista Perry, Larissa Martinez, and Jay Baron allege Shein “produced, distributed and sold exact copies of their creative works without permission.”[1] Their complaint alleges Shein uses artificial intelligence and algorithms to steal exact designs for reproduction and sale.
The twist? While the plaintiffs are seeking relief under a traditional copyright claim, they are also seeking damages under the federal “RICO” statute.
What Is RICO?
RICO, the “Racketeer Influenced and Corrupt Organizations Act,” was often used to criminally prosecute Mafia figures in the 1970’s. Not limited to criminal prosecutions, RICO can also be used to provide civil relief.
To succeed in a civil cause of action under the RICO statute, a plaintiff must prove the following seven elements:
- Only “persons” can sue or be sued (an entity can be a person);
- The plaintiff must show that the defendant participated in a “pattern of racketeering activity;”
- The “pattern” must consist of at least two acts of racketeering committed within 10 years of each other with at least one act occurring after the effective date of the statute;
- The existence of an “enterprise,” which is the instrument or the target of racketeering activity, is required;
- The enterprise must engage in or affect interstate commerce;
- The plaintiff must allege and prove injury to his business or property; and
- The plaintiff must demonstrate that his injuries resulted from a pattern of racketeering activity.[2]
The Plaintiffs’ RICO Approach Against Shein
In this case, the Plaintiffs’ complaint discusses each of these elements. For example, the Plaintiffs provide detailed information on Shein’s entities, showing how the defendant uses them as an “enterprise” to commit criminal copyright infringement.
Additionally, the complaint cites this infringement as a “predicate act” under RICO. A predicate act is an unlawful act that can constitute racketeering. The statute lists these acts, including money laundering, wire or mail fraud, embezzlement, and bribery. The complaint further alleges a second predicate act, claiming Shein committed mail and wire fraud. It also provides numerous communications to demonstrate how Shein “furthered and facilitated their scheme to defraud.”
The Status of the Case Against Shein
Proving some of these elements, such as interstate commerce, is likely easy. Although the case could be tricky on the “predicate acts,” the Plaintiffs had a recent success. In fact, Judge Mark Scarsi agreed that copyright infringement using an algorithm meets the requirement of a predicate act. He noted that Plaintiffs provided enough information to show mail and wire fraud. Fraud must be pled with “particularity,” meaning Plaintiffs must provide sufficient detail, which Judge Scarsi says they did. Ultimately, the US District Court of the Central District of California denied most of Shein’s motion to dismiss.
Interestingly, Shein is now suing Temu, another low-cost retailer, for copyright infringement and trade secret violations.[3] It is becoming apparent that “fast fashion” and low-cost retailers rely on technology for copyright infringement, harming small designers and larger entities. The truest irony is that the same strategy used to cause economic harm to small designers, and larger entities, makes the fast fashion industry unsustainable. Effectively, there becomes a cycle of creative theft that they, too, must protect against.
The RICO case is moving forward, and its outcome could give artists an additional tool to preserve their intellectual property rights. Fashion designers should also leverage tools such as trademarks and design patents to protect the ornamental features of a product. Finally, small designers can use these tools to protect their designs, and fight back against IP violators, even those with deep pockets.
The Michelson Institute for Intellectual Property, an initiative of the Michelson 20MM Foundation, provides access to empowering IP education for budding inventors and entrepreneurs. Michelson 20MM was founded thanks to the generous support of renowned spinal surgeon Dr. Gary K. Michelson and Alya Michelson. To learn more, visit 20mm.org.
Endnotes:
[1] Court Keeps RICO Claim Against Shein in Play in Lawsuit. (2024, November 9). The Fashion Law.
[2] Racketeer Influenced and Corrupt Organizations Act – Hardly a Civil Statute (From RICO – Expanding Uses in Civil Litigation, P 3-59, 1984, Arthur F Mathews, ed. – See NCJ-95991) | (n.d.). United States Department of Justice, Office of Justice Programs.
[3] Fonrouge, G. (2024, August 20). Shein sues Temu over copyright infringement, alleges rival loses money on every sale. CNBC.