Advertising, Marketing & Promotions Alert >> Groupon Settles ...

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Companies that sell coupons or vouchers to consumers should take note of the Groupon settlement and consider its provisi
APRIL 2012

ADVERTISING, MARKETING & PROMOTIONS

>> ALERT GROUPON SETTLES “EXPIRATION DATE” CLAIMS FOR $8.5 MILLION E-commerce company Groupon, Inc. has agreed to pay $8.5 million to settle over a dozen lawsuits alleging that it violated federal and state gift certificate laws by selling vouchers with illegal expiration dates. The settlement, if approved by the court, would resolve claims of millions of people who purchased or received one or more Groupon vouchers in the United States from November 2008 through December 1, 2011. The plaintiffs alleged that the federal Credit Card Accountability Responsibility and Disclosure Act prohibited the sale of vouchers with expiration periods of less than five years. The plaintiffs also alleged that Groupon marketed and sold vouchers with expiration dates that violated various state consumer protection laws and other state laws applicable to gift certificates, and that it failed to adequately disclose the applicable terms of sale to consumers.

GROUPON VOUCHERS Groupon provides consumers with a selection of “Daily Deal” promotional offers from a wide array of merchants in the United States and abroad. Typically, Groupon vouchers are offered at a discounted price and are divided into two parts, the value paid for the voucher (Paid Value) and the difference between Paid Value and the initial face value of the voucher (Promotional Value). The Paid Value generally expires no sooner than five years after date of

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issuance pursuant to federal law, however, the Promotional Value will expire in a much shorter time period, under the theory that the Promotional Value is not subject to standard minimum “gift certificate” expiration date requirements because no consideration was paid in exchange for the Promotional Value.

THE SETTLEMENT Although Groupon denied the plaintiffs’ allegations and contended, among other things, that the Promotional Value of its vouchers fell within an exception for promotional gift certificates under federal law and that expiration of vouchers was permitted under state law, it agreed to settle the lawsuits. In the settlement, in addition to the $8.5 million settlement fund for consumers (and for attorneys’ fees and certain costs and expenses), Groupon agreed to certain changes to its business practices. First, for three years after the effective date of the settlement, Groupon agreed not to sell more than 10 percent of its annual number of Daily Deals with an expiration date of less than 30 days from the date of

THE BOTTOM LINE Groupon did not admit liability nor that it had done anything wrong or illegal, and there was no such court finding. Furthermore, the settlement appears to accept that a bi-furcated approach to discount gift certificates may be an acceptable way to deal with federal and state minimum expiration date requirements for gift certificates. Companies that sell coupons or vouchers to consumers should take note of the Groupon settlement and consider its provisions as a roadmap for best practices for online daily deal or group coupon sales.

issuance, applying to the voucher’s Promotional Value, or any expiration date applying to the Paid Value of the voucher. The limited exceptions to this requirement are for: >> Groupon Now! Vouchers (vouchers that must be redeemed right away, typically the same day the voucher becomes available for purchase); >> continues on next page

APRIL 2012

ADVERTISING, MARKETING & PROMOTIONS >> ALERT >> Groupon vouchers sold for travel related offers; >> Groupon vouchers sold for admission to ticketed events; or >> Groupon vouchers that offer goods, services or events that are “inherently limited by time or availability.” Groupon also agreed to make certain disclosures relating to vouchers and their promotional value and purchase

price. Moreover, Groupon agreed that where the customer purchase price of a Groupon Now! voucher is paid for but the voucher is not printed or viewed, the purchase will be cancelled and a refund of the customer purchase price will be applied in the form of the original purchase. Additionally, if a Groupon Now! voucher is paid for and printed or viewed on a mobile device but is not redeemed, Groupon agreed that the purchaser will receive a refund of the purchase price upon request.

FOR MORE INFORMATION Joseph J. Lewczak Partner 212.468.4909 [email protected] Matthew E. Smith Associate 212.468.4804 [email protected] or the D&G attorney with whom you have regular contact. Davis & Gilbert LLP T: 212.468.4800 1740 Broadway, New York, NY 10019 www.dglaw.com © 2012 Davis & Gilbert LLP