Yelp Hit With Second Extortion Lawsuit, CEO Responds

March 5, 2010— -- One week after a California animal hospital filed a lawsuit against Yelp alleging extortion, another California business filed a similar suit against the popular online review site.

A San Diego law firm Wednesday filed a class action with the U.S. District Court for the Central District of California on behalf of Christine LaPausky, owner of D'Ames Day Spa in San Diego.

The complaint alleges that the San Francisco review site promises to remove or bury negative reviews if businesses agree to a monthly advertising subscription.

"Yelp thus capitalizes on the presumed integrity of the Yelp.com ratings system to extort business owners to purchase advertising," the complaint said. The tech blog The Next Web posted a copy of the entire document on its Web site.

In a blog post Thursday, Yelp CEO Jeremy Stoppelman hit back, calling the extortion claims "meritless."

Yelp CEO: Lawsuits Borne From Lack of Understanding

"The allegations are false and easily refuted," he wrote. "They are borne from a lack of understanding of how Yelp works to provide consumers with useful information about local businesses and protect users from fake, or shill, reviews."

He also said that he wasn't surprised by the second "frivolous" suit. Referring to a recent round of financing in which Yelp raised $25 million, Stoppelman wrote, "These misconceptions are also fueled by lawyers, who may have heard about Yelp's recent financing round and may be seeking a share."

"These copy cat suits get filed in what is known as a race to the courthouse, where lawyers jockey to be named the lead lawyer of the case and take the biggest share of legal fees; being among the first to file a suit increases the chance of being put in charge of the case," he wrote.

He emphasized that the company would fight both suits aggressively.

"I do want to ensure you that we don't take any of these allegations or events lightly. Especially the fact that misunderstandings about Yelp have arisen in the first place," he wrote. "We understand some businesses can find us confusing or a source of anxiety. We are working hard to make our business even clearer."

Last week, law firms in San Diego and Miami filed a similar class action complaint on behalf of Gregory Perrault, a veterinarian who owns and operates Cats & Dogs Animal Hospital in Long Beach, Calif.

California Animal Hospital Files Extortion Complaint Against Yelp

"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."

Perrault said that after contacting the company about a suspicious negative review, a sales person told him that if he paid $300 per month, he would have more control over his page on Yelp.

He 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.

Vince Sollitto, vice president of corporate communications for Yelp, last week told ABCNews.com that the allegations "are demonstrably false.

Yelp: Advertisers Pay for Advertising, Not Control Over Reviews

"Yelp treats review content equally for advertisers and non advertisers 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.

Even before these recent lawsuits, Yelp has faced extortion accusations.

A story published last year by East Bay Express in Oakland, Calif., featured a number of area business owners who said Yelp 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."