Groupon's secret - Page 3

Are misleading online ads the secret to Groupon's success? And is Google implicated?

A lawsuit alleges that Groupon uses illegal bait-and-switch tactics to hook new customers.

"The starting point of this suit is simple enough, namely that businesses need to tell the truth in advertising," he said. "The complaint alleges that Groupon wasn't telling the truth because it says X in its ad but when you get there it says Y, which has nothing to do with X."

Goldman also predicted that, to the extent that SFCT's suit is truly about an algorithm problem, it won't be helpful to Groupon. "But that doesn't mean the plaintiff will win," he added, noting that establishing false advertising is tricky.

The plaintiffs will have to establish that their parties are competitive and that their businesses were harmed, Goldman said. He also observed that this particular class action suit points to a broader range of questions about the legitimacy of Groupon's business practices and problems with Google's AdWords platform.

Goldman pointed to a lawsuit filed June 7 against Amazon suggesting that Amazon had an algorithmic tool for buying ads and that perhaps the tool had gone awry. In that case, Maxfield, a New York City company that markets and distributes the magnetic desk toys called Buckyballs, alleges that beginning May 5 when people searched online for "Buckyballs," an ad popped up for Buckyballs at Amazon. But when customers clicked on this ad, they wound up on a website that purports to be a listing for Buckyballs but is actually an ad for Maxfield's competitors' products.

Goldman also said there is a growing trend of plaintiff law firms feasting on Internet companies, especially in Silicon Valley. "They are watching for these companies to make a mistake and are pouncing on them. It's possible that suits are mushrooming into class action suits because someone is looking to get more money," he said.

But in SFCT's case, Goldman noted, "the plaintiff's story makes sense."