Groupon Sues Execs Who Fled to Google

CHICAGO (CN) - Groupon, the online provider of daily deals, claims two former sales executives took confidential information with them when they joined Google Offers, a "copycat deal-of-the-day website that utilizes the same business model as Groupon to offer on-line group coupons."

Groupon sued Brian Hanna and Michael Nolan, claiming their work at Google will inevitably lead to disclosure of trade secrets to Groupon's competitor.

Google is not a party to the complaint.

"The defendants' disclosure of Groupon's confidential information relating to how it structures and prices deals with merchants will permit Google Offers to immediately compete against Groupon with the benefit of knowing Groupon's sales and marketing strategies," Groupon claims in Cook County Court.

Groupon claims Hanna and Nolan breached their employment agreements, which bar them from working for a direct competitor of Groupon for 2 years.

Hanna and Nolan left Groupon in September to join Google Offers, a competing site Google set up after Groupon rejected Google's $6 billion buyout offer last year. Groupon says Google lured the two away by offering them more money.

Groupon describes itself as "the innovator of deal-of-the-day websites that provide consumers with discounted offers for goods and services that are targeted by location and personal preference. Groupon was launched in November of 2008 in the Chicago market and now serves 175 markets in North America and offers online deals in 43 different countries. Despite the recent entry of multiple copycat competitors, including but not limited to Google Offers, Groupon continues to be the market leader in the deal-of-the-day website industry."

Groupon hopes to raise up to $540 million in an initial public offering by selling 30 million shares at between $16 and $18 each, according to its Oct. 21 SEC filing. Groupon has grown quickly in its 3 years, and claims to have more than 140 million subscribers in its regulatory filing. It is planning a 2-week road show to attract investors before its IPO, around Nov. 3.

Groupon says Hanna and Nolan breached the contracts in which they agreed to protect confidential information and refrain from soliciting its clients and employees for 24 months after leaving Groupon.

"By executing their employment agreements, defendants agreed that they would not, upon termination of their employment with Groupon and for a period of twenty-four months thereafter, engage in 'any services similar to or competitive with the Groupon business model (deal of the day site or collective buying platform), or any other activity directly competitive with the current business activities of [Groupon] or any subsidiary,'" the complaint states. (Parentheses and brackets in complaint).

Groupon says Hanna and Nolan had access to sensitive information, such as deal structuring and timing, prices, market research and merchant information, and direct contact with customers.

"To facilitate their work as sales managers at Groupon, the defendants were given access to a number of proprietary sales force databases containing Groupon's deal history with merchants, including the pricing and structure of those deals, Groupon's contracts and contract templates for participating merchants, the identification of existing and prospective Groupon merchants, and Groupon's in-house sales Wiki providing information regarding Groupon's sales practices and strategies," the complaint states. "In addition to the above-described databases, the defendants received regular email transmissions regarding Groupon's sales strategies and initiatives, including deal pricing information and the identification of prospective participating merchants and how best to market to merchants so that they will agree to offer a Groupon. The defendants also participated in regular sales strategy meetings at Groupon where they were provided with updated information regarding how Groupon structures and prices deals with participating merchants."

Groupon adds: "This information is not publicly available, but rather has been developed by Groupon over time through the use of analytical research and substantial experience-tested research and development. It has taken Groupon substantial time and the application of significant resources, and money to develop this best practices information and to continue to optimize it."

What's more, Groupon says, on the day Hanna resigned, he emailed Groupon client information to himself, to use it after his termination.

Groupon claims both defendants failed to return materials belonging to the company, such as sales training manuals and other marketing information. It claims Google Offers will use the information to compete against it, inflicting "irreparable injury" upon Groupon, including loss of income, loss of clients and its commercial reputation.

It seeks damages for breach of contract and violations of the Illinois Trade Secrets Act, and wants the men enjoined from disclosing confidential information to Google.

Groupon is represented by Michael Layden with the Richard J. Prendergast law firm.

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