Groupon Misappropriates Unaffiliated Small Businesses to Drive Web Traffic to Its Own Site, Class Action Alleges [UPDATE]

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High-end hair salons in Los Angeles and Hoboken, New Jersey allege in a proposed class action that Groupon has illegally profited from the misappropriation of the “goodwill and reputations” of tens of thousands of small businesses nationwide by falsely affiliating them with Groupon while inaccurately describing their services and operations. 

The 50-page complaint alleges Groupon, a platform where businesses can offer their goods and services at a discount, has taken to listing tens of thousands of small businesses on its website without their permission or consent. These unauthorized postings, which appear on search engines and are replete with “stock language” meant to confuse consumers, “serve no useful purpose” beyond diverting traffic away from the actual businesses’ websites and toward Groupon’s website, the filing says. 

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“[Hoboken’s] Salon Phoenix does not need Groupon’s help to find new customers because it takes only a limited number of clients on an appointment-only basis,” the complaint reads. “Yet, Salon Phoenix appears on Groupon’s website, with its business inaccurately and falsely described as ‘a day spa that caters to both men and women’ and one that ‘happily accepts walk-in appointments.’” 

Ultimately, Groupon utilizes the goodwill and reputations of scores of small businesses to “manipulate internet search results and therefore drive web traffic to its own website,” the lawsuit alleges. Per the case, Groupon does not pay businesses for the use of their information, nor for inaccurately describing them on its website. 

“Small businesses do not exist to line the pockets of tech companies,” the case scathes. “These businesses do not work hard to develop their goodwill and reputations for tech companies to misappropriate and profit from their efforts.” 

The lawsuit says Groupon, who has admitted that it relies heavily on search engine marketing and optimization to drive traffic to its platform, does not and cannot actually offer customers any of the discounted services it advertises for Salon Phoenix or many of the other businesses that appear on its website without consent. According to the suit, the unauthorized Groupon listings can be found only by web searches, and not through Groupon’s platform or applications. 

“That is, Groupon’s unauthorized pages for Plaintiffs are not viewable from inside the platform; they may only be found through web searches,” the case reads, stating that while Groupon uses unaffiliated small businesses to promote itself to consumers, it does not in turn promote the small businesses on whose goodwill and reputation it trades. 

According to the suit, when a consumer clicks on a link to one of Groupon’s allegedly unauthorized pages for a business, they are prompted to sign up for Groupon at a discounted price and encouraged to “Explore Deals Nearby” by browsing listings for businesses who have partnered with the defendant. 

Typically, Groupon enters into agreements with third-party merchants whereby the merchants advertise a certain quantity of discounted items or services on Groupon’s marketplace, the suit explains. In exchange for access to the marketplace, businesses pay Groupon a commission, typically calculated as a percentage of the revenue collected from each transaction, the case says. 

Essentially, Groupon earns revenue as “a transaction middleman,” relying on expanding to as many new customers as possible by way of web search results like those found on Google, per the complaint. 

The suit goes on to state that although Groupon has the ability to disclaim affiliation with non-partner businesses, it fails to do so for unauthorized pages such as those alleged by the plaintiff hair salons. 

The case looks to cover all persons or entities in the United States that Groupon has listed on its website through the creation of a business landing page, and that did not agree to be a Groupon partner. 

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