In a legal battle that highlights the fierce competition in the fast-fashion industry, Shein, a Chinese-linked fashion giant, has filed a lawsuit against its rival Temu. The lawsuit accuses Temu of stealing Shein's designs and utilizing counterfeit, intellectual property infringement, and fraudulent practices to establish its empire. Filed in a federal court in Washington, D.C., the suit comes at a time when Shein itself is facing similar allegations from various brands and independent artists, including Levi Strauss and H&M.

Shein's complaint alleges that Temu, owned by PDD Holdings, has been masquerading as a legitimate online marketplace while encouraging its sellers to steal designs from other brands. Even after admitting to infringement, Temu continues to prevent the removal of these infringing products from its platform. The lawsuit states that Temu attracts U.S. consumers with the promise of extremely low pricing, but in reality, the company suffers losses with each sale, subsidizing every transaction. To compensate for these massive losses, Temu allegedly relies on trademark infringement and the sale of counterfeit or sub-standard goods.

Both Shein and Temu have disrupted the retail industry with their ultra low-priced products and their ability to quickly respond to trends, outpacing their traditional competitors. However, alongside their success, both companies have faced criticism for their labor practices, connections to the Chinese government, and alleged use of other brands' designs. Seeking to gain market share, the two rivals have resorted to legal action to accuse each other of scandalous allegations.

Last year, Temu had previously sued Shein citing copyright concerns and allegations of bullying suppliers into exclusive agreements through "mafia-style intimidation." In retaliation, Shein's complaint accuses Temu of engaging in illicit behavior, with at least one of its employees stealing valuable trade secrets including best-selling Shein products and internal pricing information. Temu allegedly directed its sellers to copy these designs and sell knock-off versions on its website and mobile application. Furthermore, Shein claims that Temu has reproduced identical copyrighted images of Shein products as promotional material on its platforms.

The lawsuit also accuses Temu of falsely pretending to be Shein on social media platforms and misleading customers away from the genuine Shein platform. Shein's complaint presents evidence including a screenshot of a Temu-sponsored Google ad that features Shein in the headline but redirects users to the Temu website. In an attempt to deceive consumers, Temu allegedly instructed its paid social media influencers to falsely claim that Temu's products, often counterfeits of Shein's goods, are cheaper and of higher quality. The complaint further states that Temu has gone to great lengths to imitate Shein by poaching resources, employees, and suppliers from the company.

Shein's comprehensive 80-page complaint includes numerous examples of clothes and designs that Temu allegedly copied. The fashion giant is seeking a court order prohibiting Temu from using Shein's confidential information and ruling in their favor. Temu has not yet responded to CNBC's request for comment regarding the lawsuit.

The outcome of this legal battle will not only impact the rivalry between Shein and Temu but also shed light on the significance of copyright protection and fair competition within the fast-fashion industry.