Yelp is the target of a class-action lawsuit that alleges the customer-review website uses high-pressure sales tactics that amount to extortion.
Two law firms filed the suit in Los Angeles federal court alleging unfair business practices against Yelp, the San Francisco-based start-up that lets users write and post reviews of local businesses. Visitors use the platform to recommend local busineeses to others - or to vent over unsatisfactory service and critique products, sometimes harshly. Customer reviews come with a rating of one-to-five stars.
Miami-based business trial law firm Beck & Lee filed the case along with the San Diego-based Weston Firm – the same firm that handled the Apple iPod and iTunes antitrust litigation. The suit alleges that Yelp employees call businesses that appear with customer reviews on Yelp and demand monthly payments in exchange for "removing or modifying negative reviews," a release by the law firms explains. It seeks an injunction to stop Yelp.com from what it calls "wrongful conduct."
'We believe that Yelp's sales tactics amount to high-tech extortion,' Jared H. Beck, a managing partner of Beck & Lee, said in a release. 'The victims tend to be small businesses, such as our client, who often have no choice but to pay Yelp exorbitant sums in order to prevent further harm to their livelihoods.'
The suit hinges on the question of whether Yelp is simply offering to run a positive advertisement above negative reviews, or whether it is further offering to remove negative reviews for cash, which could in court amount to payoffs to prevent the site from doing future harm - a.k.a. extortion.
The named plaintiff, a veterinary hospital called Cats and Dogs Animal Hospital in Long Beach, California, asked that Yelp remove a false and defamatory review from its listing on Yelp.com. Yelp refused to take down the review, the suit alleges. What happened instead? The company's sales reps called the hospital repeatedly, demanding payments of about $300 per month in order to have the negative review hidden or removed.
"The allegations are demonstrably false, since many businesses that advertise on Yelp have both negative and positive reviews," Vince Sollitto, Yelp's vice president of communications, said in a statement. "These businesses realize that both kinds of feedback provide authenticity and value.
"Running a good business is hard; filing a lawsuit is easy," Sollitto said. "While we haven't seen the suit in question, we will dispute it aggressively."
The claim is being made under the California Unfair Competition Law, a broadly-worded law dating back to 1933 that covers an assortment of fraudulent or unfair business practices, including "unfair, deceptive, untrue or misleading advertising."
According to the lawsuit, the Yelp salesperson who contacted Cats and Dogs stated that if Cats and Dogs purchased a one-year advertising subscription, Yelp would "hide negative reviews on the Cats and Dogs Yelp.com listing page, or place them lower on the listing page," and also ensure negative reviews will not appear in Google and other search engine results. The advertising subscription would also allow Cats and Dogs to choose the order in which customer reviews appeared and pick its "tagline," or phrases in a single review that show on every search page.
Gregory Weston, founder of the Weston Firm, tells Inc.com his firm has already heard from dozens of small business owners who have been similarly affected.
"It's definitely not an isolated situation," he says. "We've had calls and plenty of emails as evidence, too. Since the press release we've gotten notes from people saying they'd been affected in exactly the same way. So I think we're going to discover a lot of people that will testify against Yelp."
The law firms say they will file a permanent injunction against Yelp's alleged practices, but say they have not decided whether to file a more urgent preliminary injunction.
Negative online reviews – whether they bash customer service, ambiance, or a product – on Yelp have been widely known to bruise business-owners' egos. But whether they actually hurt business will likely be examined by the court. As Inc. reported recently in "You've Been Yelped," "Yelp is by some measures the most popular reviews website in the world, with more than 26 million monthly readers and a library of user-generated content that is probably matched only by Wikipedia. There are some eight million Yelp reviews, covering service businesses in most major American metropolitan areas, along with Ireland, Canada, and the United Kingdom."
Earlier, a series of articles published in the Bay Area newspaper the East Bay Express raised concerns about Yelp's business practices. The series quoted a San Francisco Bay-Area restaurant-owner, identified only as John, who says he received unsolicited phone calls from Yelp noting that his establishment had a solid standing – 3.5 stars out of five on Yelp – but that a few negative reviews were showing up. When John asked what he could do about his bad reviews, he told the newspaper that the sales rep responded: "We can move them. Well, for $299 a month."
Yelp denied the article's allegations on its official blog, chiding its use of anonymous sources and contradictory evidence. The company, which was founded as an online business-listings service in 2004 by Jeremy Stoppelman and Russel Simmons, maintains that it's only goal is to provide a way for consumers to find good local businesses that have been vetted and recommended by their peers.
What do you think about the lawsuit? Have you had a good or bad experience with Yelp? Share your thoughts in the Comments section below.