Appellate Court: Yelp’s “Manipulation of User Reviews Not Harmful” to Small Businesses

September 26th, 2014 by Editor

Several small business owners filed a lawsuit against Yelp claiming the company “extorted or attempted to extort advertising payments from them by manipulating user reviews and penning negative reviews of their businesses in violation of California state law.” After the lower court dismissed the complaint, the business owners appealed the decision to the Ninth Circuit Court. The appellate panel of judges agreed with the lower court’s decision.

“The panel held that the business owners failed to state a claim for extortionate, and therefore unlawful, business practices in violation of California’s Unfair Competition Law because, under the Hobbs Act and California law, 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. The panel held that, given these stringent requirements, the business owners failed sufficiently to allege that Yelp wrongfully threatened economic loss by manipulating user reviews. In addition, the business owners did not allege sufficient facts to support their claim that Yelp authored negative user reviews of their businesses,” according to the court documents.

“Today, individuals can share their opinions with the entire world courtesy of a few taps on the keyboard. The appellee in this case, Yelp Inc., provides an online forum on which its users express opinions as to services ranging from dog walkers to taco trucks,” writes Judge Marsha Berzon on behalf of the appellate panel.

“The appellees, Boris Levitt, Cats and Dogs Animal Hospital Inc. (Cats and Dogs), John Mercurio and Dr. Tracy Chan, are small business owners (collectively, the business owners) who allege that Yelp extorted or attempted to extort advertising payments from them by manipulating user reviews and penning negative reviews of their businesses. The business owners filed a class-action lawsuit against Yelp for violations of California’s Unfair Competition Law (UCL), California Business & Professions Code § 17200 et seq., civil extortion and attempted civil extortion,” she explains.

One of the plaintiffs, Mercurio, owns Wheel Techniques, an auto body repair shop. He alleged that Yelp posted “false reviews,” or reviews not composed by actual customers, “as a threat to induce Wheel Techniques to advertise.”

Allen Yazdi, CEO of SaveOn Glass, a San Francisco-based glass company, says he concurs with the plaintiffs and has had unpleasant experiences with Yelp himself.

“Though there’s no proof to [the allegations], we feel that Yelp is doing that,” he says. “When I’ve paid Yelp for advertising, more positive reviews were there and negative reviews were taken out.”

Yazdi explains that the opposite happened when he stopped advertising with Yelp, though it has not affected sales as much he expected.

“I went a year or two with Yelp, but there weren’t many changes in my business. That’s why I stopped. I just wish they were more honest about this type of thing and used some other type of advertising,” he says. “My feeling [is that they are] unethical.”

While Yazdi has experienced such difficulties with his business, Tara Novotny, accounting manager for Windows on Washington (Chantilly, Va.), says that though she’s heard reports of Yelp committing such acts, her company has never experienced them.

“I’ve gone to conferences where other contractors have shared these experiences [with Yelp], but we haven’t experienced that ourselves,” she says. “They’ve been fair with us.”

Though Windows on Washington technically does not advertise with Yelp, they pay a monthly fee that prevents competing companies from advertising on their Yelp page.

The court ruling goes on to explain that even if Yelp manipulated reviews, it would not have been “wrongful use.”

“We conclude, first, that Yelp’s manipulation of user reviews, assuming it occurred, was not wrongful use of economic fear, and, second, that the business owners pled insufficient facts to make out a plausible claim that Yelp authored negative reviews of their businesses. Accordingly, we agree with the district court that these allegations do not support a claim for extortion,” writes the judge.

“[C]han had no pre-existing right to have positive reviews appear on Yelp’s website. She alleges no contractual right pursuant to which Yelp must publish positive reviews, nor does any law require Yelp to publish them. By withholding the benefit of these positive reviews, Yelp is withholding a benefit that Yelp makes possible and maintains. It has no obligation to do so, however. Chan does not, and could not successfully, maintain that removal of positive user-generated reviews, by itself, violates anything other than Yelp’s own purported practice,” she later adds.

However, Judge Berzon and the panel leave the door open for a follow up lawsuit.

“This conclusion is not entirely the end of the matter, as Chan alleges that the ratings manipulation negatively affected her ‘business’s reputation,’” according to the judge. “But Chan does not connect her claim of reputational harm to a specific allegation of wrongful conduct. We note, too, that unlike the other business owners, Chan at one time had a contractual [advertising] relationship with Yelp. It may be that by manipulating Chan’s ratings to induce her to increase her advertising dollars, Yelp ‘breached [its] duties under the contract. But those claims should be pursued through state-law theories of contract not [extortion].’

“[L]evitt and Mercurio similarly allege that Yelp attempted to extort them by removing positive user reviews. As with Chan, such allegations are insufficient to show that Yelp threatened them wrongfully,” the judge continues.

“The judgment of the district court is, accordingly, affirmed,” she concludes.

To read the appellate court’s decision, click here.

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