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Does Groupon lawsuit threaten all mobile coupon apps?

The most recent lawsuit against deal-of-the-day service Groupon Inc. could have a negative impact on the growth of local mobile advertising and couponing.

Mobile coupons have proven to be an effective tool for brands and retailers, and their popularity among consumers continues to grow, with Groupon?s successful model Exhibit A. However, there is trouble in paradise, as lawsuits have alleged that Groupon and its retail clients issue ?gift certificates [that] are sold and issued with expiration dates that are deceptive.?

?Marketers offering discount programs, particularly ones which require an advance payment, must be vigilant in disclosing the terms of use and restrictions, as this has become a heavily litigious environment,? said Andy Lustigman, principal at The Lustigman Firm, New York.

?While I cannot comment specifically on this case, Groupon seems to straddle both gift cards and coupons or sale offers,? he said. ?The general sale concept ? that you have the ability to get a promotional price for a limited period of time ? generally comports with accepted standards of sales and coupon marketing. 

?In addition, as it relates to the prepayment portion, which presumably could be considered a gift card, Groupon?s terms ? as stated on its frequently asked questions page ? provide that if a purchaser has missed a promotional deadline, he or she is still entitled to use the amount actually paid consistent with state gift certificate laws.? 

Groupon?s FAQs page provides the following response to the question ?What happens if my Groupon expires?"

All is not lost! Once a Groupon reaches its expiration date, it loses its promotional value, but you can still redeem it at the price you paid for the length of time stated by gift certificate laws in your state.

Still, it is an open question as to whether or not that will be enough to protect Groupon and its retail partners, including Nordstom Inc., from pending lawsuits.

Mobile coupon or gift certificate?
Anthony Ferreira filed a class-action suit in the Southern District of California federal court alleging that it is illegal for Groupon to sell gift certificates with expiration dates.

The suit seems to be dependent on classifying Groupons as gift certificates. But are they gift certificates, coupons, vouchers or offers?

Whatever you call them, the court will decide whether or not it legal for them to have expiration dates.

While it is possible to debate the merits of the argument, what is clear is that the resolution of the case will set an important precedent that will affect marketers using similar tactics.

?Over the past few years, various states have enacted laws that regulate expiration dates on gift certificates and cards,? said Gonzalo Mon, partner at Kelley Drye & Warren LLP, Washington. ?Currently, about half of the states either restrict or prohibit expiration dates.

?Some of these states specify an amount of time that gift certificates must be valid, while others prohibit expiration dates altogether,? he said. ?In addition to these state laws, a recent federal law requires gift certificates to be valid for at least five years.?

The plaintiff in this case is arguing that Groupon?s deals constitute gift certificates and that the expiration dates violate California?s gift certificate law, as well as the federal law.

The case will turn largely on whether Groupon?s deals are held to be gift certificates, or whether they fall outside the scope of these laws, per Mr. Mon.

The answer may depend on the specific law, but Groupon may have good arguments that the deals do not constitute gift certificates.

Certainly, they do not fit the mold of traditional gift certificates.

Moreover, in comments that accompany the federal rules, the Federal Reserve Board noted that devices that are redeemable for specific goods, services or experiences may not constitute gift certificates, under certain circumstances.

These types of devices can be subject to expiration dates.

?Services like those offered by Groupon lend themselves to mobile marketing because users can search for, purchase and even redeem deals using their mobile phones, without having to use a computer or printer,? Mr. Mon said.

?Indeed, the plaintiff specifically mentions Groupon?s mobile apps in the complaint,? he said. ?If a court were to side with the plaintiff in this case, that could adversely affect the mobile ecosystem by making these types of offers much harder to implement.

?That would also make it less likely that retailers would be willing to offer the types of deals that companies like Groupon are orchestrating.?

Piling on Groupon
Mobile Marketer's Dan Butcher interviewed Adam Snukal, senior associate at Reed Smith LLP, New York. Here is what he had to say:

The most recent class-action brought against Groupon demonstrates two important principles:
First, the same law applies across all environments and mediums, whether a person purchases a gift card at his or her local supermarket, over the Web or via mobile. 

Clients tend to think that mobile marketing marches to its own legal beat because it is such a new area, when in fact mobile marketing is subject to the same advertising, disclosure and consumer protection laws that govern every other kind of advertising. 

One takeaway from this case is simple -- advertisers should conduct the same level of due diligence on their mobile marketing and advertising as they would with TV, radio or online. 
Second, companies like Groupon on the provider side or Nordstrom's on the client side should be mindful of the legal terms to which they are committing themselves. 

Depending on whether Groupon or Nordstrom's established the "Groupon" terms and conditions, the other party may have had grounds for an expensive right of indemnification. 

All too often these types of provisions become boilerplate forms in an end user or customer agreement that are not given the attention and review they deserve...until it is too late.

Please click here to view the complaint

Final Take
Groupon on NBC New York