A legal dispute between two fast-fashion juggernauts was pared back this week when a US judge ruled Temu’s foreign corporate parent won’t stay a defendant in the case. But the news was not all bad for Shein, whose direct and contributory false advertising claims over Temu’s alleged practice of paying influencers to denigrate rival products move forward.
Reliance by brands on influencers for a signal boost with consumers is not without significant risk.WhaleCo Inc., operator of Temu, could be liable for “guidelines” it provided to third parties with large social media followings that directed public proclamations Temu products are “cheaper” and “way better quality” than those of Shein.
While rejecting Shein’s claims that the statements rise to the level of common law product disparagement or trademark dilution, US District Judge Timothy J. Kelly of the District of Columbia found Wednesday that they are nonetheless actionable as both direct and contributory false advertising under Section 43(a) of the Lanham Act.
To that end, and despite the objectively verifiable nature of pricing claims generally, Temu was required — but failed — to show its products “always” cost less than those of Shein.
The judge was also unpersuaded that the superior quality claims qualify as mere puffery — a common finding when one product is touted as better than another — because Temu’s influencers arguably went one step farther with the modifier “way.”
“Particularly in the fast-fashion context, where buyers know that low prices (a key selling point) can come at the cost of quality,” he deemed the characteristic one that “matters” to consumers.
Although an admittedly “close call,” Kelly gave Shein’s false advertising claims an early go-ahead.
That could mark a potentially costly blow to Temu, whose Gross Merchandise Volume (GMV) was projected to top $40 billion in 2025 and from whom Shein owner Roadget Business PTE Ltd has indicated it will seek disgorged profits and other ill-gotten gains as a remedy.
— Dataset stolen, shared —
That request, along with one for trebled damages and a permanent injunction, was lodged in a sprawling, 16-count complaint (see here) in which WhaleCo and its corporate parent PDD Holdings Inc. (PDDH) were accused of luring US consumers into using the Temu mobile app with promises of extremely low pricing.
Shein maintains that those same bargains are directly traceable to rampant theft of its intellectual property.
The misdeeds allegedly began when WhaleCo shared on WeChat a surreptitiously acquired dataset comprising pricing and other confidential business information relating to a ranked list of Shein’s most popular products. The suppliers on the chat were “instructed” to use Shein’s “Best Seller Data” to create knockoffs for Temu, according to the plaintiff, representing trade secret misappropriation and copyright infringement.
On the Lanham Act front, Temu allegedly used the “Shein” trademark in keyword advertising and on the social media platform X to dupe consumers into believing it sells authentic Shein goods, while orchestrating a social media marketing campaign intended to inflict maximum damage on its chief competitor.
Specifically, WhaleCo guidelines “instruct” influencers to include in the caption of Temu-sponsored Instagram posts statements like “Shein is not the only cheap option for clothing! Check Temu.com out, cheaper and way better quality!” and “Looking for clothes better than Shein but cheaper than revolve? Check Temu.com out.”
In the underlying motion, PDDH sought dismissal on personal jurisdiction grounds while WhaleCo said a subset of Shein’s claims fail as a matter of law.
Granting the first request in full and the latter only as it relates to product disparagement and trademark dilution, Kelly found Wednesday that WhaleCo’s Cayman Islands-based corporate parent lacks sufficient minimum contacts with the US to withstand suit there.
But he also seemingly had little difficulty in denying dismissal as it relates to the “Best Seller Data,” concluding that Shein identified its trade secret with sufficient particularity, the dataset is likely entitled to protection and that WhaleCo is adequately alleged to have engaged in its disclosure and use.
It is his holding at Section 43(a), however, that warrants the most attention from brands.
— No ‘parade of horribles’ —
There, not only did Kelly find the direct false advertising claim viable, he broke new legal ground in the DC Circuit by blessing a theory that Temu can also be held liable for the social media guidelines provided to its influencers.
In so doing, he deemed “persuasive” the rationale espoused by the US Court of Appeals for the Eleventh Circuit in 2015’s Duty Free v. Estee Lauder and said he found no compelling reason the contributory trademark infringement liability principles articulated by the US Supreme Court in 1982’s Inwood Labs v. Ives Labs do not also extend to false advertising.
“WhaleCo . . . foreshadows ‘untold liability’ for ‘any person’ based on ‘third parties’ social media posts,’ but that parade of horribles ignores the requirement that a plaintiff must plead and then prove that the defendant ‘knowingly induc[ed],’ ‘caus[ed],’ or ‘materially participat[ed] in’ the false advertising,” Kelly wrote, citing Duty Free.
“Shein does not seek to hold WhaleCo liable for unrelated third parties’ statements on social media. Instead, the complaint alleges that WhaleCo crafted and directed its influencers to make them,” he wrote.
— Billion-dollar industry —
The two e-commerce juggernauts have become familiar courtroom foes in recent years, with the underlying August 2024 lawsuit by Shein marking just the latest iteration of what has evolved into a global legal battle.
Temu fired an opening salvo in a December 2023 complaint, also in the District of Columbia, against Roadget for alleged antitrust and trade secret violations, claims that were later dismissed on jurisdiction grounds. But Temu’s copyright and trade dress claims in that case survived Shein’s dismissal bid and remain active.
Across the Atlantic, the parties will square off next year before the UK High Court on claims Temu infringed Shein’s copyrighted product images and Temu-led counterclaims of unfair competition by Shein. Trial is planned for March 2027 (see here).
Meanwhile, the parties’ newly trimmed dispute before Kelly now proceeds to discovery.
Although the threshold for defeating a motion to dismiss remains exceedingly low, his ruling this week is undeniably consequential — and potentially, for more than just Temu.
An ultimate finding of contributory false advertising liability in the case would almost certainly prompt a rethink by others of their own social media strategy and policies, calling into question not only what influencers say online but also whether such statements were independently derived or delivered at the behest of a rival brand.
With research and data firm eMarketer projecting a $13.7 billion spend by US brands, alone, on social media influencers at the close of 2027 the scrutiny may be needed sooner rather than later.
Please email editors@mlex.com to contact the editorial staff regarding this story, or to submit the names of lawyers and advisers.