Payola Lawsuit Against Yelp Dismissed

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A federal judge has dismissed a potential class-action lawsuit against Yelp, alleging that the site "extorted" businesses by offering to highlight good reviews and hide negative ones in exchange for ad buys.

U.S. District Court Judge Marilyn Hall Patel in the Northern District of California ruled last week that the businesses that sued didn't offer sufficient facts in their court papers to support their payola accusations. "It is entirely speculative that Yelp manufactures its own negative reviews or deliberately manipulates reviews to the detriment of businesses who refuse to purchase advertising," she wrote.

But the case isn't yet over for Yelp; Patel said the companies could attempt to amend their complaint and refile it. In addition, in her decision, Patel rejected Yelp's argument that it was immune from liability because of the federal Communications Decency Act.

That law generally says that Web services companies are not responsible for the material users upload. But Patel wrote that the Communications Decency Act would not necessarily immunize Yelp from allegations involving the "deliberate manipulation of customer reviews."

The ruling stems from a flurry of lawsuits filed against Yelp last year complaining that the company pressured businesses into purchasing ads. One business, the Cats and Dogs Animal Hospital, said in court papers that a Yelp salesperson offered to move two bad reviews to the bottom of its results, to ensure that they did not appear in search engine results, and also allow the hospital to decide in which order reviews would appear on the site, in exchange for a one-year, $300-a-month ad buy.

Yelp CEO Jeremy Stoppleman consistently denied that the site ever offered to bury bad reviews for advertisers. Until last April, however, the company allowed business owners to pay to have a favorite review highlighted at the top of its page. Yelp discontinued that practice after it was sued.

Last September, a judge in state court in New York also ruled in Yelp's favor in a lawsuit by a dentist alleging that he was defamed by a bad review on the site. In that case, Supreme Court Justice Jane Solomon ruled that Yelp was immune from liability because of the Communications Decency Act.

Tags: legal, web sites
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