Yelp Faces Extortion Claim, Class Action Suit

Beck said his firm had received so many inquiries from other businesses, it was considering filing an amendment to Perrault's suit naming other businesses.

Yelp, which covers businesses of all kinds in the U.S., Canada, the U.K. and Ireland, is a very powerful site, he said. (According to the company, it hosts more than 9 million local reviews.) But, he continued, though the site can help a company's visibility, highly ranked defamatory reviews can also do direct harm to its business.

Is There a Moral Hazard for Sales People at Review Sites?

While Beck said "the real immediate concern here is to put a stop to this," he said the suit also seeks to recover restitution and compensatory damages. He didn't provide a precise figure but said that "given the sheer number of people involved here it's in the many millions of dollars."

Michael Fertik, CEO of ReputationDefender.com, a site that helps people monitor their online reputation, affirmed that Yelp has become a major online force for American businesses.

"What happens on Yelp makes and breaks businesses," he said. "The importance of this to the small and mid-size businesses of America cannot be underestimated."

But, he continued, the company is "running a tough business."

Yelp may have an honorable, ethical policy, he said, but it's "massive moral hazard" for a sales person at a review site trying to sell ads to the people being reviewed.

On a "Myths" page on its Web site, Yelp says it maintains several safeguards "to ensure that no member of our team is tempted to game the system." For example, it says salespeople don't have access to the system that deletes reviews, and they sign agreements saying they won't write reviews of any businesses.

But, Fertik said, "as people try to make quota, there's a very strong moral hazard for sales people who either implicitly or explicitly say that they can help you with your results if and only if you fork it over."

Fertik said extortion accusations have dogged the company for a while, adding that more businesses might come forward given the recent lawsuit.

But he said that more transparency could go a long way to help lift the shadow cast by this suit and previous claims.

"One way to really address this globally for Yelp is to become very transparent about how it decides which reviews stay up and which reviews get indexed by Google and which reviews show up at the top of the review chain," he said. "My guess is Yelp is one of the biggest competitors in the space of reviewers and is trying to do this as ethically as it can. But we'll find out. We'll find out pretty soon."

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