Yelp! engaged in ‘hard bargaining,’ not extortion, appeals court says

A federal appeals court threw out a lawsuit filed by small business owners who accused Yelp! Inc., of attempting to extort advertising payments by manipulating reviews of their businesses.

By , Staff writer

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    Yelp CEO Jeremy Stoppelman poses at his company's headquarters in San Francisco, Aug. 1, 2014.
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A federal appeals court in San Francisco on Tuesday threw out a lawsuit filed by small business owners who accused Yelp! Inc., of attempting to extort advertising payments by manipulating positive and negative reviews of their businesses.

A three-judge panel of the Ninth US Circuit Court of Appeals upheld a decision by a federal judge dismissing the case on the grounds that the alleged conduct by Yelp! did not amount to extortion.

The appeals court said the San Francisco-based company, at most, engaged in “hard bargaining.” But the court did not rule out that the firm could be held liable for other violations if the case was litigated differently.

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The small business owners had all enjoyed positive reviews and high ratings on Yelp!’s five-star ranking system.

But that changed, they said, after they rejected solicitations to pay for advertising on the Yelp! website. Some of their positive reviews were taken off the site and their overall rankings fell.

Yelp! is a free, online review service that allows consumers to write their own assessment of the quality of service obtained from a particular business. The site boasts 61 million reviews and records 138 million unique visitors per month.

Most of the site’s reviews relate to restaurants, but the website also displays reviews of a wide range of other businesses and services, including mechanics and dentists, for example.

Yelp! says it has an objective computerized method of policing the quality of reviews – weeding out overly positive reviews planted by a business owner or employee and blocking overly negative reviews planted by a business competitor.

But it is unclear in the court’s decision how the website decides which legitimate reviews to feature prominently and which to bury or delete.

For small businesses, such reviews can make or break a company. To boost exposure, Yelp! offers advertising ranging from $300 to $1,200 per month.

The question in the case was whether any manipulation of reviews by Yelp to coerce business owners to buy advertising amounted to extortion in violation of California’s Unfair Competition Law.

The court concluded that it did not.

“Yelp’s manipulation of user reviews, assuming it occurred, was not wrongful use of economic fear,” Judge Marsha Berzon wrote for the court in a 27-page decision.

The judge added that the business owners had failed to offer enough convincing evidence in their complaint to support an allegation that Yelp employees authored negative reviews to reduce their business’ overall rating.

In essence, the appeals court said Yelp is fully entitled to organize and display its reviews how it wishes. If a change of display threatens to cause economic harm to a business, the resulting harm is not a result of extortion, the judges concluded.

The court noted there was “no claim that it is independently wrongful for Yelp to post and arrange actual user reviews on its website as it sees fit.”

“The business owners may deem the posting or order of user reviews as a threat of economic harm, but it is not unlawful for Yelp to post and sequence the reviews,” Judge Berzon said. “As Yelp has the right to charge for legitimate advertising services, the threat of economic harm that Yelp leveraged is, at most, hard bargaining.”

The appeals court noted that its holding only relates to the charges in the plaintiffs’ complaint, that Yelp! engaged in extortion and attempted extortion.

“We emphasize that we are not holding that no cause of action exists that would cover conduct such as that alleged, if adequately pled,” Berzon said. But she stressed that “extortion is an exceedingly narrow concept as applied to fundamentally economic behavior.”

The court suggested business owners facing manipulation of positive reviews might be in a position to bring a case accusing Yelp of hurting a company’s business reputation in violation of trade libel law. But the judges said they were not deciding that question.

The plaintiffs in the case included Boris Levitt, owner of a furniture restoration business.

Mr. Levitt said his business had an overall Yelp! rating of 4.5 stars out of 5 stars. But within two days of his refusal to buy advertising on Yelp!, several 5-star reviews vanished and his company’s rating slipped to 3.5 stars.

He considered the action a “threat” to force him to buy advertising. He said the lower rating hurt his business reputation and the firm’s bottom line.

Cats and Dogs Animal Hospital said it contacted Yelp! to complain about a negative review that showed up on the website outside Yelp’s 12-month policy. The review was removed, but another negative review appeared, the hospital said.

Soon, the animal hospital received “high pressure” calls from Yelp sales representatives who allegedly promised to manipulate negative reviews on the listing page if the hospital would purchase advertising.

The hospital refused. A week later, the out-of-date negative review reappeared on the listing page.

Tracy Chan, a dentist, said she was told by Yelp! representatives that she could keep her rating high by hiding or burying any bad reviews. All she had to do was start buying advertising.

Dr. Chan declined. Three days later, she said, nine 5-star reviews were removed from her listing. Her overall listing plunged from 5 stars to 3 stars.

Fearful of the consequences to her practice, Chan agreed to pay for advertising. Days after signing a contract, some of the 5-star reviews reappeared and her overall rating increased to 4 stars.

But it didn’t end there. Several months later, she said, she was contacted again by Yelp! with a request that she increase her advertising. She refused.

Again, positive reviews disappeared and were replaced with negative reviews. Chan decided to fight fire with fire. She posted a negative review about Yelp’s conduct on her Yelp! page. Yelp responded by removing more positive reviews. Her overall rating fell to 3 stars.

The case is Levitt v. Yelp! (11-17676).

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