Yelp Faces Extortion Claim, Class Action Suit

Feb. 26, 2010— -- "Real People. Real Reviews."

That's what Yelp, a popular Web site for reviews and recommendations, says it offers the millions of people who visit it each month.

But for some of the businesses targeted in those reviews, the site provides something else: Real problems.

Earlier this week, one California veterinarian took his complaints all the way to court.

Law firms in San Diego and Miami Tuesday filed a class action complaint with the U.S. District Court for the Central District of California, on behalf of Gregory Perrault, a veterinarian who owns and operates Cats & Dogs Animal Hospital in Long Beach, Calif.

The complaint alleges that Yelp, which is based in San Francisco, extorts business owners by promising to hide or bury negative reviews if they agree to purchase a monthly advertising subscription from the company.

"I don't have a problem with negative reviews. Like probably most business people, you use negative reviews to your advantage, as long as they're not emotional or making fun of [people]," Perrault told ABCNews.com. "It's just that I tried following their rules about the reviews and I've been [faced with] this extortion ever since."

Plaintiff: Sales Person Said Payment Would Give Him Control Over Site

Perrault said it started in September, when he and his staff noticed a negative review from a commenter named "Chris R." He said he was surprised by the man's disparaging account of his experience with the animal hospital and cross-referenced the information in the comment with the hospital's medical records.

When Perrault realized the actual experience took place in 2007, he contacted Yelp to ask that the review be removed as it violated the company's policy. (Yelp says comments must be posted within 12 months of an encounter with the business being reviewed.)

After a couple of weeks, he said, Yelp responded to him and subsequently removed Chris R.'s post. But a few days later, he claims another negative review appeared, this time from a "Kay K."

Since it was somewhat "threatening" and too vague to match against his records, he called Yelp asking that they take it down.

That's when he said he received the pitch.

If he paid $300 per month, he said a sales person said, "I'd have more control over my site and move things around and change the tagline on Google."

Uncomfortable with the alleged proposition, he said he declined.

Yelp: Allegations are 'Demonstrably False'

But then Perrault said the first negative review returned "word for word," but from a "Chris" with a different second initial.

Around the same time, he said calls from a Yelp sales person started to come with more frequency and force. At least once a week, he said he received a sales call from the Web site.

Though he claims the company had declined his request to remove the two negative reviews, he said the one from "Chris" would "come and go." Whenever he declined a call from Yelp, he said the review would return.

"It just got to be too much," he said.

Perrault said he decided to take legal action, because he wants Yelp to be more transparent about how it ranks and chooses to host the reviews on its site.

"My fear is that unless I took this step and I don't sign up for their plan, I'm going to continue to get harassment," he said. "It's like they're holding me over a barrel here if I don't sign up."

As consumers continue to search the Internet for businesses, he said, the power of online reviews will continue to grow. "I don't want to be another business that gets hurt by unethical practices," he said.

29 Million People Used Yelp in January

Vince Sollitto, vice president of corporate communications for Yelp, said the allegations "are demonstrably false.

"Yelp treats review content equally for advertisers and nonadvertisers alike. And advertisers pay for advertising, not control over reviews on their page," he said. "This credibility of review content is critical to Yelp's value and is precisely why 29 million people used the site last month to find a great local business."

Though he said that the recency of a review, the credibility of a reviewer and the Yelp community's response to a review can affect its ranking on a business's page, he said he couldn't elaborate on the algorithm the company uses to rank reviews.

"We see daily attempts to write fake reviews promoting one business or negative reviews attacking a competitor," he said. "In order to protect consumers and businesses alike from being victimized by fake or malicious reviews, we employ an automated algorithm that we can't disclose entirely or else people will game the system."

Though some businesses may wonder why reviews disappear or move around a page, he said the algorithm that drives the rankings is set up to be dynamic and devoid of human bias.

Yelp: Content on Site Fluctuates Daily

"Content can fluctuate daily," he said. "While that may confuse some business owners, I think most recognize that the value of good review content is tremendous."

According to Yelp's Web site, reviews may vanish if the writer chooses to remove it, if the "automated Review Filter" suppresses it, or if another user flags it, believing it violates the site's review guidelines. In that case, the customer service team would review it and then could manually delete it.

The site also says that reviews can disappear and reappear over time, as the people who write the reviews become more or less established on the site.

Yelp acknowledges that the process can be "frustrating for some," but even before Perrault's lawsuit, some local businesses claimed that it wasn't just frustrating, it was unfair.

A story published last year by the East Bay Express featured a number of Bay Area business owners who said Yelp had offered to bury negative reviews if they signed up for a monthly ad subscription.

At the time, the company's COO Geoff Donaker said it wasn't within advertisers' and sales representatives' ability to manipulate rankings. But in an interview with the local paper, he said Yelp could better train the sales team to be "crystal clear about what you get and don't get."

Plaintiff's Attorney: 'Dozens' of People Describe Similar Situations

Since news of the class action suit has spread, Jared Beck, one of Perrault's attorneys, said several business owners have contacted his firm with complaints similar to those outlined in the lawsuit.

"We've been directly contacted by dozens of people. And in every location you can think of. Literally across the country," said Beck, an attorney with Beck & Lee Business Trial Lawyers in Miami. "What we learned is that this isn't an isolated practice or a single event or a single sales representative run amok. This seems to be a regular business practice."

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."