Yelp does not “extort” by trading review placements for ad contracts, appeals court rules

In a ruling that could affect small businesses across the country, a California appeals court unanimously rejected claims by an auto body shop and an animal hospital, among others, that Yelp extorted them by tying positive and negative reviews to the purchase of advertising contracts worth $300 to $1,200 a month.

On Tuesday, the Ninth Circuit Court of Appeals found [company]Yelp[/company] has the right to arrange its reviews, which let customers leave comments and a one-to-five star rating, as it it sees fit. The ruling, which also found Yelp has a right to engage in “hard bargaining,” agreed with a lower court’s decision to throw out the case because the businesses had failed to make a claim that Yelp violated state or federal unfair competition law.

The ruling is a clear victory for Yelp, which published a blog post on Friday describing the allegations as “conspiracy theories” and stating that Yelp has never altered “business ratings for money.”

The California businesses in the lawsuit had declared otherwise, stating that positive ratings disappeared or negative ones appeared on Yelp immediately after the business owners declined to purchase advertising contracts. One dentist in the case also claimed she finally agreed to sign up out of fear and that, “just days after signing the contract, her ‘overall rating increased to 4 stars and various five star reviews were reinstated by Yelp.’”

While Yelp has always disavowed such allegations, the appeals court ruling will provide little comfort for other small business owners who believe their success depends on social media reviews.

In particular, an important part of the decision — which does not ultimately resolve whether or not Yelp manipulates the reviews — explains that the company has the right to organize its website, and to sell ads, however it wishes to do so:

The business owners may deem the posting or order of user reviews as a threat of economic harm, but it is not unlawful for Yelp to post and sequence the reviews. As Yelp has the right to charge for legitimate advertising services, the threat of economic harm that Yelp leveraged is, at most, hard bargaining.

The court also expresses a concern about judges interfering with the normal course of business activity, and that a stricter rule “would transform a wide variety of legally acceptable business dealings into extortion.” Yelp is hardly the only online review site — it competes with Google, among others — but the ruling may amount to a green light for all such review sites to employ what the court calls “hardball” sales tactics.

For Yelp, the ruling is a partial vindication and a clear victory, but not the end of legal controversies tied to its business model. In August, a shareholder filed a class action suit claiming that Yelp withheld information about an FTC investigation over its negative review practices in order to goose its stock price. And in Virginia, the state’s Supreme Court is posed to decide a closely watched free speech case over whether Yelp has to reveal the identify of anonymous reviewers in certain cases.

Here’s the decision with some relevant parts underlined:

Yelp 9th Circuit Decision

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