Yelp, the online site that publishes customer reviews, had won an appeal before the 9th Circuit Court of Appeals at San Francisco in September. A class action lawsuit brought by restaurants and other businesses alleged that the company used extortion and unfair practices in deciding which reviews to publish from users. Earlier, a judge had dismissed the suit by small business owners, and the Appeals Court has upheld the action.

Restaurants Charge Extortion and Manipulation of Ratings

Consumers trust reviews that they read on Yelp because they perceive that unbiased users write them. However, businesses allege that Yelp refuses to print positive reviews unless the restaurants and other businesses advertise with the company. Complaints against Yelp include the following issues:

  • Yelp filters-out positive reviews and publishes any unflattering assessments prominently if restaurants refuse their sales calls or don’t agree to advertise on the site.
  • Sales representatives inform prospects that they can delete negative reviews for companies that buy advertising.
  • Salespeople refuse to stop calling when asked to do so.
  • Yelp actually publishes libelous reviews occasionally.

Yelp’s explanation for not including reviews is that the company doesn’t publish extremely negative or positive reviews that cross the lines of good taste or that restaurants might have written in-house. Claiming proprietary processes, Yelp asserts that its rating criteria and assessment algorithms are unbiased, fair and protected by privacy laws.

Contradictions in Yelp’s Defense Strategy

Yelp argued before the Appeals Court that it never changed ratings based on advertising. At the same time, the company claimed that even if it did use unfair practices, no laws were broken. Common sense indicates that the company should stick with one argument or the other since the positions contradict each other.

Ruling Details

The Court’s interpretation in its verdict is that Yelp has the right to charge for advertising and bargain accordingly. The three-judge panel decided two-to-one in favor of Yelp. Dissenting Judge Peter Doft of San Diego disagreed with the verdict and likened Yelp’s practices to “the modern day version of the Mafia going to stores and saying “You wanna not be bothered…Pay us protection money.’”

Related Issue in the News

In a related matter, California Governor Jerry Brown signed legislation that protects consumers from libel lawsuits when posting reviews and comments online. Consumers include people with ulterior motives who can now post libelous reviews about restaurants without worrying about facing legal action in California. Competitors have license to vilify other restaurants, and Yelp gives companies a forum to reach a wider audience. Yelp has more than 138 million viewers each month, and a negative review could easily sink a small mom-and-pop restaurant in a competitive market

Many restaurant owners are appalled and disheartened over the ruling and California legislation. The plaintiffs could still appeal the decision to the Supreme Court. Yelp may well have won the battle and lost the war if restaurants can rouse public opinion against the popular review site. Many entrepreneurs are considering alternative ways to get reviews before the public, and the Internet offers many potential forums for user-generated restaurant reviews.

  • Social sites, loyalty programs and local bloggers are ideal alternatives for promoting local restaurant reviews.
  • Restaurants can sponsor blogs and reviews where consumers rate Yelp’s actions.
  • Consumers and businesses can continue filing complaints with the FTC, Better Business Bureau and consumer-protection organizations.
  • Restaurants can publicize the review issue in-house by using Chromecast to broadcast on digital monitors, digital signs to inform customers, Internet forums and the classic low-tech solutions of issuing press releases or distributing fliers.

The only definite conclusions that any reasonable person can draw is that Yelp doesn’t really care if its reviews are valid and fair. The company believe it can ask for money to publish positive reviews, bury negative reviews and improve ratings. By any standard, such actions constitutes an unfair practice. Yelp has enough power to put restaurants out of business, so its actions could cause real financial harm.