NEW YORK/SHANGHAI - Online fast-fashion retailer SHEIN and its newer rival Temu are in a race to win shoppers' attention for their inexpensive China-made goods.

The battle between them is playing out not only on social media but also in a U.S. court. The legal skirmish is important for U.S. consumers and rival retailers because it shows how online retailers with vendors in China need to navigate U.S. intellectual property protections.

In U.S. federal court, SHEIN has accused Temu of contracting social-media influencers to make "false and deceptive statements" against SHEIN in their promotions of Temu.com.

If Temu loses, Temu could be forced to curtail its use of social media influencers as a key marketing strategy. SHEIN seeks to block Temu from using SHEIN's name for marketing, and it wants damages from sales that SHEIN could show came through "deceptive" or "infringing" marketing.

Temu has asked the court to dismiss the lawsuit. The court has not ruled on the case.

“I think as Temu gets a higher profile, there will just be more and more lawsuits. Including IP, but probably not just IP. I'm sure there will be data-related things as well,” US and China tech analyst Rui Ma said.

SHEIN produces clothing in China to sell online in the United States, Europe and Asia, offering items such as $10 dresses and $5 tops. SHEIN, originally founded in China, relies on drop-shipping directly from its extensive network of China-based suppliers.

SHEIN is set to raise around $2 billion in a new funding round this month and is aiming for a U.S. listing in the second half of this year, three people with knowledge of its plans told Reuters. SHEIN said it does not currently have plans for an IPO and declined to comment further.

SHEIN's lawsuit against Temu, filed in December in U.S. District Court for the Northern District of Illinois, alleges that Temu told social media influencers to make disparaging remarks about the fast-fashion retailer, and tricked customers into downloading the Temu app using "imposter" social media accounts.

Social media influencers on TikTok often mention SHEIN in posts about Temu, comparing the companies and their merchandise.

"I am not with Shein anymore," one influencer said in a February post on TikTok. "I am with Temu who has the same and more for less."

The now-deleted @SHEIN_DC, @SHEIN_USA_, and @SHEIN_NYC pages were created in September and displayed SHEIN's logo and marketing material on their bio pages, according to screenshots provided with SHEIN's complaint.

VYING FOR THRIFTY SHOPPERS

"Temu has also attempted to impersonate the SHEIN brand and trick consumers into believing Temu is associated with that brand," the lawsuit alleges.

SHEIN said that links on the imposter pages led shoppers to download Temu's app, under the impression that the two companies were related. A SHEIN spokesperson declined to comment on the pending litigation.

A Temu.com spokesperson said the company "strongly and categorically rejects all allegations and is vigorously defending its rights."

Temu maintains that it never impersonated SHEIN and "played no part in the creation" of the Twitter accounts, according to its motion to dismiss the lawsuit. It also said "there is nothing actionable" about finding influencers who believe Temu compares favorably to SHEIN, or asking them to share those opinions.”

SHEIN itself has faced lawsuits alleging copyright infringement. Under the name Zoetop Business, it was sued by dozens of independent artists and retailers including Nike, Deckers' UGG brand, Luxottica Group's Oakley shades and online retailer Dolls Kill, alleging stolen designs.

PDD Holdings, which owns China's popular Pinduoduo app, launched Temu in September as a new app for U.S. shoppers to buy shoes, jewelry, beauty accessories and home goods directly from Chinese merchants.

Temu's gross merchandise value - the total sales before expenses - grew from $3 million in September to $192 million in January, according to data firm YipitData. The company plans to roll out in Australia and New Zealand this year after launching in Canada in February.

The company's social media efforts started months ago, according to job postings by Nanopower, Temu's marketing agency. In the U.S., Temu is paying social media influencers $100 to $1,000 an hour for content plugging the Temu marketplace on TikTok, Instagram and YouTube.

Temu is currently hiring a corporate/tax lawyer, according to a job posting on LinkedIn.

Reporting by Arriana McLymore Editing by Nick Zieminski, Vanessa O'Connell and Chizu Nomiyama