The ruling, which comes as Shein aims for a $US30 billion to $US40 billion ($A43 billion-$A57 billion) valuation in a Hong Kong initial public offering, concerns the first round of their London legal battle.
Thursday's ruling dismissed Shein's claims for copyright infringement and upheld Temu's counterclaim, seeking damages for having to remove listings when Shein obtained an injunction.
A Shein spokesperson said the company was surprised by the ruling: "We do not believe that is the right outcome for brands and rights holders seeking to protect their copyright online."
Temu did not immediately respond to a request for comment.
At the start of the trial in May, Shein accused Temu of breaching its copyright "on an industrial scale", using its photos to advertise copies of Shein's own-brand clothing to "piggy-back" on a more established competitor.
Temu - owned by PDD Holdings - denied the allegations and argued that Shein was using litigation to stifle competition.
Temu's separate counterclaim, alleging that Shein broke competition law by tying fast-fashion suppliers to exclusive agreements, is due to go to trial in 2027.
Shein and Temu, which have expanded rapidly in international markets with low-cost clothing, accessories and gadgets, have also sued each other in the US.
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