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Groupon, Daily Deal Sites and Legal Considerations

Groupon, Daily Deal Sites and Legal Considerations

On June 15, 201, Rocky Agrawal, a Social Media expert who writes for TechCrunch and is reviewing the Daily deal industry wrote an article on the legal challenges facing Groupon, Living Social and other Daily Deal sites. Agrawal states that Groupon and Living Social may be violating several key aspects of consumer protection law. Because this is a relatively new industry in some cases the specific legal handling is unclear, however in others the law is clear cut.  Agrawal provides the following examples:

  1. Gift Cards- In the U.S. gift cards are regulated by legislation in 27 states. While the legal definition of a gift card varies by state, they function the same way as a daily deal. Since the consumer prepays for the daily deal voucher, they are valid for a pre-determined value and are redeemable for goods or services at specific business locations, they can be considered a gift card for legal purposes. This raises the problem  that gift cards in most regulated states are valid for a lot longer than the standard 6 months offered by Groupon and most daily deal sites. Massachusetts for example has legislation requiring gift cards to be valid for 7 years.
  2. Merchant Bankruptcy- What happens if you buy a daily deal voucher and the merchant goes out of business before the expiry date (and before you use the voucher)? There seems to be conflicting and unclear information on this. Groupon’s terms of service seem to be saying that the merchant is responsible if this problem arises. The consensus is that Groupon and Living Social along with the more premium sites are refunding money when the business goes under. But what’s the law on this?  Who will be legally responsible a few years down the line when this problem is compounded?
  3. Sales tax- How much tax do you charge on a $50 purchase that someone buys for $25? This sounds a lot simpler than it really is.
  4. Alcohol- 27 states in the U.S. and most Canadian provinces restrict and regulate discounting and advertising on alcohol. In his article, Agraval demonstrates the irony of this previous statement. In Illinois, where Groupon is headquartered, merchants can’t discount alcohol to some patrons over others. Yet it was found that 87 Groupon vouchers in Chicago mentioned “beer” and 252 that mention “wine”. While these laws are not being enforced at this time, if they ever were it would undoubtedly lead to legal challenges and lower sales.

In the “Groupon Promise” everything is made to make the consumer feel the warm and fuzzies. One of the experts interviewed by Agrawal, Ben Edelman, an assistant professor at Harvard Business School, states “From one perspective, the Groupon Promise is basically illusory. Groupon is likely to argue that it’s just a statement of their customer service plan, not their actual legal obligation(s). Meanwhile their Terms of service are much harsher and much less generous. That kind of difference is the stuff of consumer class action law suits.” It’s important to note, however, that to date, most customer comments regarding Groupon customer service have been positive. The feeling you get is that while Groupon’s Terms of Service may be onerous for the consumer, they will do everything possible to avoid creating noise that may lead to legal repercussions.

In Canada as in the U.S. the daily deal industry is very new and also remains to be tested from a legal perspective in many areas. It is always recommended to consult a legal expert in your jurisdiction or city should you require legal advice. In Canada and in New York, Osler is a law firm that has experts specializing in Internet law and can provide more detailed advice on this topic.

By |2011-07-07T14:34:59-04:00July 7th, 2011|

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