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Court rules Yelp can manipulate ratings based on ad purchases

Court rules Yelp can manipulate ratings based on ad purchases

The online review site Yelp can change the ratings of businesses on its site as it sees fit according to a decision by a federal appeals court. Yelp was accused of lowering the ratings of companies that did not purchase advertising on its site, and in a unanimous decision the court upheld its right to do so.

The owners of Cats and Dogs Animal Hospital in Santa Barbara, California alleged that Yelp was manipulating the reviews on the hospital's business listing. The owners claimed that a Yelp representative offered to lower the number of negative reviews if Cats and Dogs purchased ad space. They declined and then claimed that Yelp increased the number of negative reviews on their listing in retaliation.

Cats and Dogs Animal Hospital sued Yelp for extortion, saying Yelp was using the threat of harm through negative reviews to force businesses to buy ads. They were joined by Boris Levitt, the owner of a San Francisco-based furniture restoration business, Wheel Techniques body shop and dentist Tracy Chan. Both Legitt and Chan claimed that several five-star reviews disappeared from their pages just days after refusing to buy ads.

John Mercurio, the owner of Wheel Techniques, said that he asked a representative why one of his competitors had a higher star rating and was told that his competitor had purchased ads.

The U.S. Court of Appeals for the 9th Circuit ruled unanimously in favor of Yelp, upholding a lower court's dismissal of the case. The the three-judge appeals panel said that Yelp has a right to charge businesses for advertising and a right to arrange the content on its pages in any manner it wishes. U.S. District Court Judge Marsha Berzon, writing for the majority, said that Yelp has a right to “post and arrange actual user reviews on its website as it sees fit."

The Court also found insufficient evidence to support the claim that Yelp was posting or manipulating negative reviews. However, it noted that Yelp did have a right to do so. Even if Yelp were to influence the reviews of non-advertisers, such interference would not rise to the level of extortion. Speaking for the panel, Berzon said, "As Yelp has the right to charge for legitimate advertising services, the threat of economic harm that Yelp leveraged is, at most, hard bargaining."

Berzon also noted that businesses do not have a "pre-existing right to have positive reviews appear on Yelp's website."

Yelp released an official statement about the decision on its blog, saying, “We are obviously happy that the court reached the right result, and saw through these thin attempts by a few businesses and their lawyers to disparage Yelp and draw attention away from their own occasional negative review.”

For years, Yelp has fought accusations that its rating system is unfair or rigged. Many businesses believe that advertisers are rewarded with better reviews. Yelp has long denied the claims, saying they do not and could not manipulate reviews, since their review-filtering software does not distinguish between advertisers and non-advertisers.

Yelp uses an algorithm that filters approximately 25 percent of the reviews submitted for any given business. According to Yelp, the algorithm aims to only hide spammy or fake reviews posted by the business itself in an attempt to gain a competitive advantage. But the algorithm does make mistakes, and sometimes legitimate five-star reviews are removed. This can be very frustrating, particularly for smaller players who are trying to gain a foothold in a very competitive market.

The companies involved in this and other lawsuits against Yelp see an inherent conflict of interest in Yelp's business model. Yelp automatically categorizes businesses using public records and address information available online, and third-party users are then allowed to rate these companies. Yelp profits from selling ads to the same businesses that are being rated on its site. No matter how much Yelp denies the claims, it is easy to see why some businesses are skeptical.

While Yelp has been cleared of extortion charges, Legal writer Eric Goldman says that the company could still face lawsuits based on other claims, like fraud or false advertising. But this ruling does make it more difficult for businesses who believe they are being unfairly harmed simply because they are non-advertisers to seek recourse.

The decision is a victory for Yelp, but the company has to carefully manage user perceptions moving forward in order to retain the trust of its visitors. If people know Yelp can legally manipulate reviews, will they wonder if Yelp is doing it?

Yelp is a powerful player in the online retail market. According to Yelp's own research and that done by Nielson, 98 percent of the people who visit Yelp make a purchase. People go to Yelp almost entirely with the intent of buying, usually within one day to a week. Nielson estimates that 44 percent of those shopping for a product or service online visit Yelp before making a decision.

Yelp is also more trusted by those searching for an attorney than legal directories like Martindale-Hubbell and Avvo. Research performed by the Texas-based company Software Advice found that 58 percent of people searching for a lawyer go to Yelp first, and 61 percent of respondents said that Yelp was the most trustworthy review site. And Yelp listings rank well — in some cases higher than the business ranks organically itself.

The study also found that among those who use review sites, 83 percent visit a review site as the first step when looking for an attorney.

For now, Yelp is still one of the most trusted and most used online review sites. Claiming and optimizing your Yelp profile is still and important part of an overall brand management strategy.

Kristen Friend
Kristen Friend holds two bachelors degrees from Indiana University and an associates degreee from the International Academy of Design. As Art Director for Custom Legal Marketing, her work has been awarded Webby Honorees, WebAwards, Davey Awards, Muse Awards, W3 Awards, and many others. She is also a contributor to Entrpreneur Magazine through the Entrepreneur Leadership Network.