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Groupon: Trouble In Paradise?

grouponGroupon, Inc. is in the midst of a class-action lawsuit, the result of which could alter the foundation of mobile couponing.  For the uninitiated, Groupon is a group buying website that offers large discounts on local goods and services. Groupon sends subscribers daily emails with promotional offers.  If a specified number of people sign up for the offer, the deal becomes available to all.  For example, a Groupon offer might permit a subscriber to purchase an $80 massage for $40.  The "Groupons" are valid for a certain period of time. According to Groupon's "terms of service," after a "Groupon" reaches its expiration date, it loses its promotional value; however, it can still be redeemed for the price paid.

The class-action lawsuit relates to expired "Groupons." Specifically, the plaintiffs purchased "Groupons" that expired before they were used. The plaintiffs allege that "Groupons" are really gift certificates that are subject to laws regulating the expiration terms of gift cards.  For example, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act) prohibits retailers from setting expiration dates less than 5 years after a gift card is purchased.  Additionally, most states have consumer protection laws imposing similar, or even more stringent, restrictions.

The class-action is dependent on classifying "Groupons" as gift certificates. It is unclear how the court will rule.  For example, the court could rule that the "Groupons" are merely coupons or vouchers that are not subject to the restrictions governing gift certificates. One thing is clear however - the resolution of this case will set an important precedent for Groupon and other businesses offering similar services.

Stay tuned for further updates on this issue.

Categories: E-Commerce

Photo of Nicholas M. Oertel
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focuses his practice in the areas of Michigan non-property tax disputes, business entity selection, corporate transactions, and information technology.

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