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Groupon faces multitude of legal headaches in US

Mo' money off, mo' problems

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Groupon may have rather more legal woes than people generally think. The problem isn't particularly that it's doing anything wrong - it's that the major limitation on most innovation is the old way of doing things. In this case, that's the laws about the old ways of distributing and using coupons.

Research from Harvard seems to show that Groupon and similar sites are at least in danger of being in breach of the various consumer protection laws that have been passed over the years to protect users of the old coupon distribution systems like newspapers and flyers. The research identifies seven major areas in which what is currently on offer does not match up with what is required.

One problem is that most of these restrictions are based upon State law rather than Federal, meaning it's quite possible that the same Groupon cannot be offered in different areas. And there are enough population concentrations in the US that cross state lines that the same offer might be legal to run in one part of a conurbation and not in another.

Many places have a ban on offering discounts on alcoholic beverages; the length of time that a voucher must remain valid is often much longer than a Groupon lasts; and unused portions of vouchers must, in certain states, be redeemable for cashback. There are those places that demand sales tax on the discounts being offered (yes, but that is the law), the redemption method appears open to both error and fraud and, in what might be the most worrying part, it is Groupon that is the vendor on the customers' credit card, meaning that they are therefore liable for the delivery of the actual goods or services.

Finally, there's the slightly bizarre insistence by some states that unused vouchers and coupons are actually the property of the state itself, analogous to forgotten-about bank accounts or people dying intestate.

As the authors of the research point out: “Taken individually, each problem might be resolvable. But in combination, these problems reveal the striking complexity and substantial legal exposure endemic to the business model voucher sites have chosen.“

The various social buying and club coupon sites may indeed be the best thing since sliced bread, but as with so many innovative business models there are already a myriad of laws in place trying to stop people being too innovative in their relationships with customers. These laws are at State level, meaning there's 50 (possibly more, DC might have its own and it wouldn't be a surprise at all to find out that some major cities like New York or San Francisco have their own as well) different systems that have to complied with.

All of which makes what looks like a very simple business model rather more complex in its exposure to legal liability.

Given that Groupon is in its “quiet period” before the IPO it cannot comment on such matters. But while the mills of bureaucracy may grind slowly they do grind small, and it's unlikely that any of the online coupon companies are going to be able to continue without at least tailoring offers to this web of complex local rules. ®

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