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LEGAL ISSUES

Yelp's Legal Troubles Mount
 

A San Francisco furniture store this week added its name (and court papers) to the list of small businesses accusing Yelp of extortion.
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Extortion allegations against the online review site Yelp mounting, with a California furniture store filing the third complaint against the review site in less than a month. Additionally, nine more companies have joined a class action lawsuit filed against Yelp a few weeks ago.

All of the cases accuse the powerful San Francisco start-up of extortion and fraudulent business practices, alleging the site's reviews are not unbiased – and, specifically, that it manipulates ratings and awards visibility based on whether or not companies pay to advertise. Yelp has denied the charges.

In a complaint filed in San Francisco Superior Court March 12, the owner of a 17-year-old San Francisco business called Renaissance Furniture Restoration claimed Yelp deleted his business's positive ratings after he declined to buy advertising.

In July, Restoration had 261 Yelp page views and an overall rating of 4.5 stars out of a possible five. The suit alleges that two days after he refused to pay "at least $300 a month" for advertising, six of seven 5-star reviews vanished from the site and his overall rating sank to 3.5 stars. (Read the 15-page lawsuit here.)

The ho-hum rating cost owner Boris Levitt big time. By August, the number of page views driven to Restoration's website fell to 158 and his revenue dropped by 25 percent.

"People wouldn't click on a business which only had a 3-star average rating, and I started to lose business," he told the San Francisco Chronicle.  

As of Thursday, the company had 4.5 stars again, but just three reviews: two five-star recommendations and a four-star review.

Yelp hasn't commented on the third lawsuit, but in a blog post March 4 headlined "Different Day, Different Lawyer, Same Meritless Claim: A Classic Race to the Courthouse," the company's co-founder and CEO Jeremy Stoppelman called the two suits filed so far "frivolous" and said the allegations "are false and easily refuted." He suggested that lawyers were fueling the claims, hoping to grab a piece of the $100 million investment the company had recently received from Elevation Partners.

The lawsuits "are borne from a lack of understanding of how Yelp works to provide customers with useful information about local businesses and protect users from fake, or shill, reviews," Stoppelman wrote, explaining that when businesses ask customers for reviews (something Levitt acknowledges he did), they can get caught in Yelp's review filter.

"Solicited reviews, more so than naturally occurring ones, are more likely to be detected by Yelp's review filter, which we employ to protect consumers from shill reviews and businesses from malicious reviews from competitors," Stoppelman wrote.

In what is perhaps an in indication that Yelp is looking for ways to quell discontent among small business owners, the company's next blog post, which went up on March 9, touted the company's "Yelp for Your Business" webinar series, whose topics include "how to manage your reputation on sites like Yelp."

Yelp faces other concerns: Though the company recently announced that customers had rated 1 million local businesses in less than three months—bringing the total number of reviews north of 10 million—the site's monthly unique visits are down 2.97 percent (to 24.4 million) compared to a year ago, according to Compete.com.

In addition to Levitt's lawsuit, nine small businesses Tuesday joined a class action lawsuit originally filed last month by Cats and Dogs Animal Hospital in Long Beach, California. Among other things, the suit claims Yelp's sales reps tried to get the vets to pay $300 a month for advertising – for a minimum of 12 months – to hide any negative reviews. The companies that joined the suit: Chicago's Bleeding Heart Bakery,  Scion Restaurant of Washington, D.C.; J.L. Ferri Entertainment of New York City; and six California companies: Sofa Outlet, Celibré;  Astro Appliance Service, Wag My Tail;  Le Petite Retreat, and Mermaids Cruise. (A third lawsuit filed early this month from the D'ames Day Spa of San Diego also accused Yelp of deleting positive reviews when the spa declined to buy advertising.)

The suit is literally the frosting on the cupcakes for Bleeding Heart Bakery. The self-described "punk rock pastry" outlet is celebrating the lawsuit with a $2.75 cupcake that features "Yelp" in red icing in the familiar red no-go sign.

"We felt very alone for a long time," bakery owner Michelle Garcia told the Chicago Tribune of the lawsuits. "We heard that others were upset, but just got ridiculed over and over by Yelpers for 'crying wolf' when we weren't...Now, look, everyone else is saying the same thing. Damn, it feels good."

Last updated: Mar 18, 2010

Inc. contributing editor COURTNEY RUBIN was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.




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