As many of you already know, the Internet coupon king Groupon sued two of its former executives last week after they joined Google, alleging that they were violating their two-year non-competes and would inevitably disclose their trade secrets to Google. Womble Carlyle’s Trade Secrets Blog has a nice summary of the case that also notes that Groupon has recently sued a sales representative in Illinois state court to enforce that rep’s non-compete.
Groupon’s fear is that Google will use those trade secrets in its recently launched Google Offers. One of the ways Groupon touts itself over its smaller rivals is its 5,000 sales representative network and 143 million-strong email list. However, as Rolfe Winkler reports in The Wall Street Journal’s “Heard on the Street” column, Google presents a real threat to Groupon because it can dilute that advantage by enabling those smaller rivals to benefit from Google’s vaunted search technology. Winkler succinctly notes, “As the undisputed search leader, Google has the potential to reach many more users than simply those signed up for daily-deal emails.”
It was widely reported that Google had offered to buy Groupon for $6 billion last year, and Groupon’s COO recently left to rejoin Google in September, so clearly there is a nice narrative there for a trade secret dispute. Despite those facts, (at the time of this post) Groupon has not yet joined Google in the lawsuit.
Aside from protecting its IP, there is another very important reason that Groupon needs to stem any perceived bleeding: it is in the process of launching an IPO this week. The valuation of high tech companies is notoriously tricky, and you don’t have to be an investment banker at Goldman Sachs to figure out that the desire of the world’s largest Internet company to aggressively compete against Groupon by hiring its former executives and sales managers introduces even more uncertainty into that equation. As of this morning, Groupon will sell 30 million shares in its IPO, priced at $16 to $18 per share. Groupon estimates its net proceeds will be $478.8 million, down from the $750 million Groupon originally expected to pull in.
It will be interesting to see how aggressively Groupon pursues the two employees after the IPO launches. I will keep an eye on this one.