Review site Yelp faces class-action lawsuits

2008 08 29 15 39 44 564 Justice Scale 70

Two class-action lawsuits filed in the past two weeks against the Internet review Web site allege that it extorts businesses by posting more favorable reviews if they buy advertising.

At least one of the law firms involved, Beck & Lee, is actively soliciting reports from anyone who has had a negative experience with Yelp. The chief plaintiff in that suit is a Long Beach, CA, veterinary hospital that contacted Yelp to complain that a review was "false and defamatory." The suit alleges that Yelp sales representatives contacted the hospital to ask for $300 per month in exchange for removing the review.

“We believe that Yelp's sales tactics amount to high-tech extortion.”
— Jared Beck, Beck & Lee

In a similar suit filed by the firm of Ronald Marron, the owner of an Imperial Beach, CA, day spa accuses Yelp of removing favorable reviews the owner had solicited, then asking her to buy ads. After she refused, more of the favorable reviews disappeared, according to the lawsuit.

At least two San Francisco Bay Area dentists have individually sued Yelp reviewers for defamation. But a federal law shields Yelp itself, like all Web sites, from liability for content posted by users. And the reviewers are defending themselves by citing a California law against using lawsuits in an attempt to squelch freedom of speech.

State and federal laws

The first of the class-action suits instead relies on a state law against unfair business practices and misleading advertising. The second uses the same law and also a federal law, the Racketeer Influenced and Corrupt Organizations (RICO) Act, which makes it a crime to belong to an organization that commits crimes, including extortion.

"We believe that Yelp's sales tactics amount to high-tech extortion," said Jared Beck of Beck & Lee, which is collaborating with the Weston Firm in the first suit. "The victims tend to be small businesses, such as our client, who often have no choice but to pay Yelp exorbitant sums in order to prevent further harm to their livelihoods."

On his blog, Yelp CEO Jeremy Stoppelman stated that the allegations probably arise from a misunderstanding about the way Yelp works. The site programs its computers to automatically detect and remove reviews that have been posted as part of an organized effort, or that are problematic in other ways.

Yelp won't reveal the algorithm it uses to delete these reviews, so business owners can't tell why reviews disappear from their listing. When they hear from advertising sales reps, business owners may erroneously assume that these reps are moving the reviews around to punish those who don't advertise and reward those who do, Stoppelman wrote. The confusion is heightened because Yelp does openly sell business owners the right to move a single favorite review to the top of the listing.

But Stoppelman stated the fact that most business owners who have bought advertising still have negative reviews in their listing is "empirical evidence" that the site is not extorting the business owners. He speculated that the law firms "may have heard about Yelp's recent financing round and may be seeking a share."

"We know this lawsuit to be without merit, we will fight it vigorously, and we are confident we will prevail," Stoppelman wrote.

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