Lawsuits Aimed at Yelp and Its Reviewers

Yelp is an online local directory service that combines customer reviews and social networking features. A visitor to the Yelp site can search for a particular type of service (e.g., dog grooming) within a specific geographic area (zip code, city, etc.). Yelp then provides business listings that meet the users criteria along with a rating, reviews provided by users of the service, and other useful information such as business hours, address and phone number, and parking information. Yelp was founded in 2004 and earns revenue by selling ads to local businesses.49

Research by two Berkeley economists has shown that Yelp reviews can have a significant impact on the success of a business. For example, just a half-star increase on Yelps 5-star rating scale makes it 30 to 49 percent more likely that a restaurant will sell out its 6-8 pm seating. The researchers concluded that online rating services play an increasingly important role in how consumers judge the quality of goods and services.50

Yelp does not censor reviews and accepts reviews from friends as well as competitors of a business. As with other online rating services, Yelp has received criticism over the fairness of its reviews and has been accused of allowing fake reviews to be posted. However, Section 230 of the Communications Decency Act of 1996 protects Yelp from defamation lawsuits brought based on reviews that users post to its Web site.51

During 2010, several lawsuits emerged that claimed Yelp extorted businesses to advertise on the Web site in exchange for positive reviews. Yelp strongly denied the charges and eventually a judge granted the firms request to dismiss the suits. However, the charges did cause Yelp to modify its review process. The firm discontinued its practice of allowing businesses that advertise with it to position their favorite review above all others. In addition, Yelp now allows users to see reviews that were deleted by its automated review process, which was designed to prevent business owners from posting too many positive reviews of their own business or strongly negative reviews of competitors.52

Online reviewers sometimes find themselves facing unpleasant consequences over what they have said in a review. An owner of a business may decide to confront a reviewer, either via online forums or emails, or in an actual face-to-face encounter. In addition, a 2012 Yelp reviewer was hit with a $750,000 defamation lawsuit and ordered to alter her derisive review of a home contractor, which included charges of jewelry theft.53,54

Discussion Questions

1. Visit Yelps Web site (www.yelp.com) and search for reviews for a service from a local business with which you are familiar. Do you notice any reviews that are overly negative or that seem to border on defamation based on your experience with this business? Are there any reviews that are so positive that they sound like they were written by or paid for by the owner? Imagine that you are the Web site owner and want to automatically filter out such reviews. How might you do this in an ethical manner?

2. Brainstorm possible actions that a local business owner can take to offset the negative publicity associated with an especially bad reviewidentify both ethical and unethical actions.

3. What risks do you run in posting online reviews?