• by Wendy Davis  @wendyndavis, July 10, 2013

A group of merchants suing Yelp for “extortion” are expected to face off against the review site at a federal appellate hearing on Thursday morning.

The merchants are seeking to resurrect their lawsuits, which accuse Yelp of offering to hide negative reviews and promote positive ones in exchange for ad buys. U. S. District Court Judge Edward Chen in the Northern District of California dismissed the cases in 2011, ruling that the federal Communications Decency Act immunizes Yelp from liability for reviews authored by users.

Chen also ruled that Yelp also is immune from liability for decisions about how to display those reviews -- regardless of the company's motives in highlighting particular content.

The business owners filed an appeal with the 9th Circuit Court of Appeals, where they are arguing that the Communications Decency Act doesn't protect companies that “manipulate reviews for their own profit.”

The merchants also say in court papers that Yelp “is deliberately skewing the data” when assigning stars to businesses. “These underhanded and illegal tactics are not condoned by either the plain language or the intent of the Communications Decency Act,” the owners argue.

They allege that an ad purchase results in a dramatic increase in a business' rating. But if businesses reefuse to pay a monthly $300 to $1,200 fee, "their favorable 'customer' reviews are often stripped from the review page leaving only derogatory customer reviews,” they allege.

Yelp counters that it is protected by the federal law, which provides that Web sites aren't responsible for content posted by users -- even when the material is false or potentially harmful to businesses. “Plaintiffs cannot circumvent Yelp‘s immunity merely by engaging in speculation about Yelp‘s motives in exercising protected editorial functions,” the company writes in its court papers. “Yelp‘s removal of third-party user reviews and display of a user-generated star rating is squarely immune.”

Yelp has always denied allegations that it would bury bad reviews for paying advertisers. Nonetheless, in April 2010, the company agreed to some changes to how it shows reviews. Among others, Yelp said it would stop allowing business owners to pay to have a favorite review highlighted at the top of its page.

The digital rights group Electronic Frontier Foundation is backing Yelp in the case. That organization argues that a decision allowing the lawsuits to proceed could open the door to lawsuits against other sites that allow users to create content.

The EFF warns that accepting the merchants' argument could pose a threat to free speech. “If adopted, their approach would provide an avenue for other litigants to end-run the bright-line protections provided by the statute, jeopardizing service providers and undermining speech in the process,” the EFF says in its friend-of-the-court brief.

A three-judge panel in San Francisco will preside over Thursday's hearing.