Frankfurt Kurnit Klein & Selz

June 19th, 2012

Gift Rap: Groupon Settlement May Influence “Daily Deal” Strategies for Marketers

The terms of a proposed settlement of at least 17 lawsuits against Groupon may impact the way marketers of “daily deals” or other gift card offerings manage those deals and their expiration dates. The litigation included allegations that Groupon and its merchant partners offered vouchers with illegal and undisclosed expiration dates in violation of state and federal gift card laws. Groupon Daily Deal vouchers typically include two values with two potential expiration dates: a paid value, meaning the customer purchase price for the voucher, and a promotional value, or the additional value received by the customer. The paid value and the promotional value together equal the redemption value of the deal. So, for example, a consumer may pay $50 for a certificate worth $75 at a local restaurant. The consumer has $50 in paid value and $25 in promotional value, for a total redemption value of $75. In addition to placing restrictions on expiration dates for the promotional value of its vouchers, the proposed settlement strictly limits Groupon from applying expiration dates to the paid value, with certain exceptions, for three years. This represents a significant change in how daily deal vouchers are currently marketed, which typically is to include an expiration period for the paid value.

If approved by the Court, the settlement will require Groupon, in addition to issuing customer refunds, to make changes to its popular Daily Deals promotions, including allowing customers to transfer vouchers, limiting the number of deals with expiration dates, and adding disclosures regarding those expiration dates. A summary of the terms of the proposed settlement are as follows:

• Groupon must pay $8.5M to a settlement escrow account to refund class members who file verified claims for unredeemed/expired vouchers purchased between November 1, 2008 and December 1, 2011, in addition to other fees and expenses. Any remaining balance will be used to refund class members who file verified claims for vouchers purchased after December 1, 2011, less $75,000, which will be  donated to The Electronic Frontier Foundation and the Center for Democracy and Technology;
• For three years after the settlement Groupon cannot offer to sell more than 10% annually of its “Daily Deal” vouchers with an expiration date of less than 30 days from the date of issuance for the promotional value, or with any expiration date for the paid value, with some exceptions on certain vouchers, such as vouchers sold for admission to scheduled, ticketed events;
• Groupon must clearly and conspicuously disclose any difference between the expiration date of the paid value and the promotional value. All vouchers must also clearly state the date of expiration of the promotional value, and, if applicable, that the purchase price does not expire unless redeemed or refunded;
• All Groupon vouchers must be transferable, unless the voucher is for a service or good customized for or addressed to a specific individual; must by its nature be associated with a specific individual; or cannot be transferred by law.
• All terms and conditions of voucher expiration dates must be disclosed prior to purchase in Groupon’s Daily Deal promotions, including on mobile devices and applications used to download vouchers;
• With regard to Groupon Now! Vouchers, which are purchased through the Groupon Now! service and typically redeemable within 24 hours after purchase, Groupon must refund the purchase price to consumers who never redeemed, viewed or printed such vouchers; and
• Subsequent disputes between Groupon and any class action member must be resolved through arbitration.

Groupon has not admitted fault by agreeing to the proposed settlement. A final approval hearing is set for July 20th.

The Groupon settlement does not resolve pending lawsuits against other daily deal sites or fully resolve the question of whether the Groupon model of combining paid and promotional value in a single instrument will survive challenge under strict state gift card laws.  One state, Vermont, has amended its gift card law to expressly recognize and accept the combined value voucher (see page 11 of the amendment to Vermont’s gift card law). Other states may follow suit.

Daily deal sites and merchants participating in the programs offered by these sites should pay close attention to the disclosure and other requirements imposed on Groupon and its merchant partners in this settlement to mitigate risk of legal or regulatory challenge and stay current on changes in state law.

For more information on this proposed settlement or any other advertising or marketing law issues, please contact Terri Seligman at (212) 826 5580 or tseligman@fkks.com, Claudine Wilson at (212) 705 4842 or cwilson@fkks.com, or any other member of the Frankfurt Kurnit Advertising Group.

Disclaimer. This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.