Federal Court Rules That Yelp’s “Hard Bargaining” Is Not Extortion

Yelp has been plagued by accusations of extortive business practices for years. Consumers and small businesses alike have taken to their websites and blogs to report how businesses that purchase advertising through the Yelp are rewarded with the removal of negative reviews from their business profiles, while businesses that refuse to pay Yelp for advertising are punished – their positive reviews are removed and mysterious negative reviews begin to appear.

yelp lawsuitAt this point, those who frequent the website should know to take Yelp reviews with a grain of salt. However, given Yelp’s status as the juggernaut of online business reviews, if these allegations are true, small businesses that decline to advertise with Yelp stand to take a sizeable hit.

Class Action Lawsuit against Yelp
Last July, a group of California small business owners proposed a class action lawsuit against Yelp, alleging that Yelp’s business practices amounted to extortion. The business owners claimed that Yelp hid positive business reviews and fabricated false negative reviews in order to threaten the businesses and coerce them to purchase advertising through Yelp; and claimed Yelp also used these tactics as a way to penalize business that refused.

When the U.S. District Court dismissed the case for failure to state a claim upon which relief can be granted, the plaintiffs appealed their case to the Ninth Circuit Court of Appeals.

The Ninth Circuit Ruled: Yelp’s Behavior Was Merely “Hard Bargaining”
The Ninth Circuit upheld the District Court’s dismissal of the case, saying that Yelp’s behavior was “at most, hard bargaining.” The court stated that in order to prove extortion, a plaintiff must show either 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.

The court ruled that businesses have no pre-existing right to have positive reviews appear on Yelp. It explained that because Yelp is not under any legal or contractual duty to publish business reviews, removing them doesn’t violate anything other than Yelp’s own purported practice. Regarding the negative reviews, the court stated that re-posting negative reviews or moving negative reviews to the top of a business’s profile are, similarly, not a wrongful acts because they do not violate any legal or contractual rights of the business to be free from these negative reviews.

The court declined to discuss the legal consequences Yelp would face for fabricating false negative reviews, because the court found that there was no evidence that this had actually occurred.

In terms of Yelp’s right to seek payment for the service offered, the court held that there was no evidence to suggest that Yelp’s advertising services are a worthless sham or a privilege to which the plaintiff business owners were already entitled. The court held that businesses are free to decline to purchase advertising, but Yelp is not act wrongfully in offering it.

What Does This Ruling Mean for the Future of Small Business Owners?
While the Ninth Circuit’s dismissal of this case might seem like tacit approval of Yelp’s business practices, it is important to note that the ruling is limited to the alleged claim of extortion. There are other avenues through which Yelp’s actions might be challenged:

  • Other legal theories. The Ninth Circuit took care to point out that their ruling did not state that no cause of action exists that might cover the alleged conduct. The ruling simply states that Yelp’s actions did not meet the definition of extortion.
  • Contractual claims. One of the small business owners claimed that she gave in and purchased advertising through Yelp after Yelp removed nine five-star reviews from her business profile. However, after an initial improvement in her business rating, Yelp agents began contacting her about increasing her advertising purchase. Declining caused her rating to fall again. The Ninth Circuit noted that if this allegation is true the business owner could have a claim for breach of contract.
  • Consumer protection laws. Finally, just because the court decline to shield small businesses from Yelp’s “hard bargaining” does not mean that consumers will be left unprotected. The Federal Trade Commission has already issued guidance requiring search engines to distinguish search results that are the result of paid advertising from organic results (i.e., search results must be ranked on relevance not on third-party payment). It is easy to see the FTC expanding this policy to online business review sites such as Yelp, which, despite the Ninth Circuit’s ruling, states on its website, “Your trust is our top concern, so businesses can’t pay to alter or remove their reviews.”

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