Ninth Circuit: Yelp’s Practices Not Quite Extortion
Yelp has emerged as one of the leaders among review sites, with 120 million monthly users (including 53 million mobile visitors) in 26 countries it moved into profitability last quarter.
Throughout, Yelp has had it critics from the Travel Channel’s Andrew Zimmern who famously called Yelp* a “tremendous forum for a bunch of uninformed morons to take down restaurants.” Yelp* has been plagued by charges that it engages in extortionate practices in which it promises to provide a more favorable mix of reviews should a business advertise with Yelp* or conversely retaliate should it not.
In April it was revealed that the FTC has received more than 2,000 complaints about Yelp since 2008 and there are media reports about Yelp throughout this period.
In 2009, an award-winning expose by East Bay Express entitled “Yelp and the Business of Extortion 2.0” explained:
During interviews with dozens of business owners over a span of several months, six people told this newspaper that Yelp sales representatives promised to move or remove negative reviews if their business would advertise. In another six instances, positive reviews disappeared — or negative ones appeared — after owners declined to advertise. . . . .
Business owners are also disturbed that some negative reviews are written by paid Yelp employees. When the company first launched in 2004, its staff wrote many reviews on the site. And to this day, Yelp hires “Scouts” or “Ambassadors” to write reviews — especially when they enter new markets. CEO Stoppelman himself has written nearly eight hundred reviews. It’s not immediately apparent which reviews are written by paid Yelpers until you click on a user’s name to get to their profile page, where they might display a “Scout” or “Ambassador” badge.
In some cases, businesses that received negative reviews from paid Yelpers were also asked to advertise. San Francisco’s Elite Cafe, which advertises with Yelp, received a two-star review by a paid Yelp ambassador, as did Anabelle’s Bar and Bistro. In both instances, the negative reviews appeared after Yelp sales staff asked them to advertise. Both business owners were unaware that a paid Yelper had written a negative review of their business.
Yelp is a complete and utter fraud. The reviews are too self-centered, not trustworthy and half the time really don’t make sense. It’s a wonderful populist device … But there’s a nagging feeling that Yelp isn’t as accurate and honest as I want to believe.
Most recently, in 2014 he Times business columnist David Lazarus noted
I’m no lawyer, but I know a racket when I see one. Anybody who calls to say that you now have a problem but that they can make that problem go away for $75 a month isn’t your friend. I asked Fonger how Yelp’s tactics differed from, say, Tony Soprano’s or Michael Corleone’s.
“Well,” he answered, “no one’s come by to break my legs.”
Then he thought about it a moment. “At least not yet.”
Last week, however, the Ninth Circuit Court of Appeals upheld a dismissal of a lawsuit alleging that Yelp* acted in an extortionate manner by threatening companies with retaliatory action (negative reviews, competitor ads) if they did not advertise. In an opinion by Judge Berzon, the court explained that Yelp’s “manipulation of user reviews” – to the extent it was occurring – “was not wrongful use of economic fear”. The court added that the complaint failed to specify “facts to make out a plausible claim that Yelp authored negative reviews of their businesses.”
While Lazarus and others appropriately note that this sounds like extortion, the court explains that in reality it is a narrow crime such that
to state a claim of economic extortion under both federal and California law, a litigant must demonstrate either that he had a pre-existing right to be free from the threatened harm, or that the defendant had no right to seek payment for the service offered.
Yelp* still could face liability under pending claims for False Advertising and Securities Fraud. In addition, there is a question as to whether FTC rules would require Yelp to disclose that advertising payments may influence ad placements.
Yelp* was represented on the appeal by Ashlie Beringer, a lawyer I have worked with whom Sherry Osborne famously referred to as having “balls of steel” in her autobiography. Beringer argued the case just before taking her impressive track record and BOS to Facebook as its Deputy General Counsel. Congratulations to Ashlie on both counts.