The fast fashion platform Shein, known as the "Chinese Uniqlo," is facing challenges ahead of the full implementation of the European Union's (EU) Digital Services Act (DSA) as it pursues an initial public offering (IPO) on the London Stock Exchange, major foreign media reported on the 19th (local time).
The EU announced in April that it designated Shein as a "Very Large Online Platform" (VLOP) under the DSA. Shein will be subject to strict regulations under the DSA starting in August. The DSA strongly regulates the distribution of counterfeit products, harmful products, and products infringing intellectual property rights. Violations of the law can result in fines of up to 6% of global annual sales.
However, according to U.S. documents confirmed by foreign media, Shein is currently facing more than 90 lawsuits related to design and product plagiarism. Attorneys general from 16 U.S. states have urged the Securities and Exchange Commission (SEC) to require Shein to undergo an independent audit before going public, pointing out that Shein blurs the boundaries of intellectual property and copyright.
A Shein spokesperson stated that company employees, external artists, and third-party suppliers worldwide are responsible for designing Shein products. Shein sells products by initially receiving small orders and then scaling production based on real-time sales data to predict demand.
Peter Furnodey, Head of North America and Europe Strategy and Corporate Affairs at Shein, explained, "Shein's design process is often misunderstood as an artificial intelligence (AI)-based system, but we employ 200 to 250 in-house designers." He added, "Our in-house team uploads designs to the management system and allocates materials and fabrics to suppliers."
Despite these explanations, issues of Shein copying other companies' designs have been raised for years. Scott Burrow, a lawyer who has filed multiple legal actions on behalf of graphic designers and digital artists against Shein, said, "What really stands out about Shein is the scope and number of infringing products they have marketed and sold over the years."
Shein stated that to sell products on its platform, suppliers and third-party sellers must certify that their products do not infringe on the rights of other brands. The company claims it is doing its best to comply with the EU's DSA.
In particular, Shein said it has been using AI since 2020 to detect potential infringement elements. As a result, the proportion of issues raised regarding IP and copyright infringement from 2021 to 2023 has decreased to double digits.
Shein also stated during a 2021 court hearing that it employs a two-step review process involving both manual and digital elements, where humans verify designs for logos, registered trademark symbols, brand names, and so on to prevent infringement. At that time, Shein did not disclose details about the development process of swimsuits with similar designs in the lawsuit with HVN but argued that because HVN swimsuits did not use the registered trademark symbol (®), the infringement review process failed to filter out HVN designs.
Shein initially aimed to list on the New York Stock Exchange but shifted its focus to London, considering the low likelihood of approval due to U.S.-China tensions. Recently, The Sunday Times reported that the number of shares Shein plans to sell may not meet the eligibility criteria for inclusion in the FTSE 100, the UK's leading stock index, and thus may not be included in the index. Shein had initially attracted attention for potentially ranking among the top 10 companies in the FTSE 100. Additionally, a survey by the civic group Public Eye revealed that workers at 12,000 Shein suppliers in China work 75 hours per week. Consequently, ESG (Environmental, Social, and Governance) issues are being raised in London's financial district.
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