Appeals Court: Yelp’s Ad Team Isn’t Extorting Small Businesses

For several years, some have accused online review site Yelp of strong-arming small businesses into paying for ads on the site, and a handful of these companies have even sued Yelp, hoping to prove their allegations. But this week a federal appeals court shot down extortion claims made against Yelp by California business owners, saying the site’s ad sales methods are just “hard bargaining.”

This case started back in 2010, when the owners of four small businesses in California joined together in a class-action suit against Yelp.

One owner says that he was contacted by a Yelp representative hoping to convince him to sell ads. Two days after he said no to the offer, he claims that several 5-star reviews disappeared from his page and that his overall rating then dropped from 4.5 stars to 3.5 stars. He maintains that this alleged manipulation of the reviews damaged his business’s reputation and revenue.

A second plaintiff says they initially contacted Yelp about having a negative review removed from the site, as the complaint posted by the reviewer was outside the acceptable timeline for posting a review (i.e., the incident described by the reviewer had happened more than a year earlier). Yelp removed that write-up, but the plaintiff alleges that they then began receiving sales calls from Yelp ad reps who said they could “hide negative reviews” or “place them lower” on the page if the business paid for ads.

The third plaintiff makes the claim that Yelp actually fabricated negative reviews about his auto body business “as a threat to induce [the plaintiff] to advertise.” He alleged that he began seeing negative reviews — that didn’t match up to any actual customer records — at the same time as he began receiving sales calls from Yelp reps.

He also alleges that when he asked a Yelp staffer why a competing business — one that he states is known for its shoddy work — had a better rating on Yelp than his shop, the sales rep told him that it was because that competitor advertised.

The final of the four plaintiffs, a dentist, said Yelp reps told her they could keep her “business ratings high by hiding or burying bad reviews,” and that “Yelp employees also had the ability to remove reviews from a business’s Yelp page.”

She declined to advertise and claims that nine 5-star reviews were removed from her page within days of saying no to the ad offer. The doctor alleges that she was told that “Yelp ‘tweaks’ the ratings every so often and that [Yelp] could help her if she signed up for advertising services.”

The doctor eventually opted to buy some advertising and claims that shortly after she did, her “overall rating increased to 4 stars and various five star reviews were reinstated by Yelp.”

When she later balked on increasing her ad buy, she alleges that her star rating began to sink again, and when she ultimately stopped advertising, the doctor claims that “Yelp removed positive reviews… and replaced them with negative reviews.”

A U.S. District Court dismissed these complaints, saying that “theories of extortion for failure to remove negative user reviews were covered by Yelp’s immunity under the Communications Decency Act of 1996” and that there were “insufficient facts from which to infer that Yelp authored or manipulated the negative reviews and ratings; and there were insufficient factual allegations from which to infer communication of an extortionate threat.”

The lower court also described the allegations that Yelp fabricated negative reviews as “entirely speculative.” As for alleged manipulation of user-generated reviews, the court once again cited Yelp’s immunity under the CDA.

In the opinion released Tuesday [PDF], the Ninth Circuit Court of Appeals upheld the lower court’s dismissal of the complaints and explained that the businesses had not been extorted because they had not threatened with “wrongful harm,” and saying that extortion “requires more than fear.”

“The Hobbs Act defines extortion as ‘the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right,'” writes the court. “Threats of economic harm made to ‘obtain… property from another,’ are not generally considered ‘wrongful,’ where the alleged extortioner has a legitimate claim to the property obtained through such threats. Therefore, unless a person has a pre-existing right to be free of the threatened economic harm, threatening economic harm to induce a person to pay for a legitimate service is not extortion.”

Since the plaintiffs were claiming violations of California law, the appeals court cited state law in explaining that “[f]ear, such as will constitute extortion, may be induced by a threat… to do an unlawful injury to the person or property of the individual threatened… thus excluding fear induced by threat to do a lawful injury.”

Basically, the court is saying that a business has no pre-existing right to positive reviews or to be protected from negative reviews.

“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,” writes the court. “As Yelp has the right to charge for legitimate advertising services, the threat of economic harm that Yelp leveraged is, at most, hard bargaining.”

Obviously, Yelp is very pleased with this decision, writing “fringe commentators have accused Yelp of altering business ratings for money. Yelp has never done this and individuals making such claims are either misinformed, or more typically, have an axe to grind.”

In a statement to Ars Technica, the lawyer for the plaintiffs tells Lawrence Murray, a plaintiffs said it “It is a sad day for millions of small businesses across the nation who can not afford to pay the extortion, which Yelp calls ‘advertising,’ to retain positive reviews… With big money and awesome destructive power behind them, only Congress and the California Legislature can Stop Yelp.”