Appeals Court Rules That Yelp's Ad Sales Tactics Aren't Extortion, Just 'Hard Bargaining' Businesses don't have the right to pre-existing good reviews, the court said.
By Laura Entis •
Opinions expressed by Entrepreneur contributors are their own.
Popular social-review site Yelp is making headlines after angry small-business owners are once again accusing the company of manipulating user ratings in order to sell ads, a strategy they claim equals extortion. And once again, these entrepreneurs' pleas have been silenced by the justice system.
This week, a federal appeals court came down on Yelp's side, ruling that the company's sales strategies do not extort businesses, but can instead be classified as perfectly legal "hard bargaining."
This particular lawsuit originated in 2010, when four small business owners sued the company for extortion, claiming that after they turned down paid advertising from the company, bad reviews suddenly resurfaced, while good reviews were buried.
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The Ninth U.S. Circuit Court of Appeals in San Francisco ruled that even if these allegations are true, Yelp still isn't guilty of extortion. According to the verdict, Yelp has the right to charge for its ads, and thus review manipulation is "at most, hard bargaining." Ultimately, small businesses don't have a "pre-existing right to have positive reviews appear on Yelp's website," the court said.
Boris Levitt, one of the plaintiffs and the owner of a furniture business, alleged that after he refused to advertise with Yelp, several five-star reviews suddenly disappeared from his company's page, causing his overall star rating to fall. Dr. Tracy Chan, another plaintiff, told the court a Yelp sales representative promised to improve her ratings by burying negative reviews if she agreed to buy advertising.
While the court's decision means such practices are legal, Yelp continues to vehemently deny it employs them. "For years, fringe commentators have accused Yelp of altering business ratings for money," the company wrote in a recent blog post. "Yelp has never done this and individuals making such claims are either misinformed, or more typically, have an axe to grind –whether businesses upset that Yelp will not remove reviews they don't like, or unscrupulous internet marketing 'experts' trying to make a buck off of honest business owners with dubious reputation management schemes."
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Yelp has repeatedly been taken to court over these charges. (In 2011, a U.S. District Court judge ruled that Yelp was protected from accusations that it offered to highlight positive reviews and hide negative ones in exchange for paid advertising.)
While legal, it's presumably not great for Yelp's reputation if the public thinks the company is tinkering with its review-filtering algorithm based on whether or not a company pays for advertising.
"On the surface, you'd think this news would be an endorsement for Yelp," Gartner Research Director Brian Blau told the San Francisco Chronicle. But the ruling could raise potentially uncomfortable questions for the company: "If Yelp is permitted to do this, will they? They said they aren't, but will they in the future? That's going to be the bigger question."
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