Posted By: Stephen Timmer
“Yelp Defeats Legal Challenge to its User Review Filter.” It is a headline that we have all become accustomed to seeing; the scales of justice tipping in the favor of the 800-lb. gorilla of review sites. As a refresher, Yelp is one of the most recognized review sites on the Internet. Yelp professes itself as a source for consumers to locate local businesses, determine the quality of their services and to provide a forum for consumers to issue reviews on said businesses. James Demetriades, a manager of three restaurants in Mammoth Lakes, California, filed a lawsuit against Yelp; he claimed the site’s review filter was skewed towards displaying negative reviews of one of his restaurants and suppressing the positive reviews. While the case did not go in favor of Mr. Demetriades, it is important to understand how the California Superior Court in Los Angeles applied the law against him and how it was misapplied in this high-profile case. The rules of law cited in the case that could be crucial in holding Yelp liable in future litigation based upon different factual scenarios.
Demetriades v. Yelp
In his lawsuit against Yelp, Demetriades claimed that they had committed untrue or misleading advertising and he claimed that they performed unfair business practices. Yelp’s defense to his claims was that their actions were protected under CCP § 425.16, an anti-SLAPP law in California and moved to strike the claim.
SLAPP is an acronym for Strategic Lawsuit Against Public Participation. SLAPPs are civil suits that are brought typically by organizations that believe they have been harmed by the exercise of someone’s exercise of speech protected by the first amendment. Anti-SLAPP laws, like CCP § 425.16, were passed to curtail lawsuits that threaten to prevent people from exercising their right to free speech. Anti-SLAPP laws have served as an effective shield for websites seeking to avoid liability for comments that have been made by users or information content providers, as defined in 47 U.S.C. § 230(f)(3).
To grant Yelp’s motion to strike Demetriade’s claim under California’s Anti-SLAPP law, they had to make a threshold showing that the challenged cause of action arose from protected activity and if the showing was made, Demetriade had to demonstrate the probability of prevailing on the merits of his case. The Court ruled that the statements in controversy and misrepresentations being alleged were protected activity. Demetriade’s case was based upon Yelp’s actions falling under a commercial speech exception in CCP 425.17(C).
For actions to fall under the commercial speech exception under CCP 425.17(C), the California Court of Appeals requires four elements to be met. The first is that the cause of action is against a person primarily engaged in the business of selling or leasing goods or services. The second element is that the cause of action arises from a statement or conduct by that person consisting of representations of fact about that person’s or a business competitor’s business operations, goods or services. The third element that needs to be met is that the statement or conduct was made either for the purpose of obtaining approval for promoting or securing sales or leases of, or commercial transactions in the person’s goods or services, or in the course of delivering the person’s goods or services. The final element involves the intended audience for the statement or conduct meets the definition set forth in section 425.17(C)(2) – an actual or potential buyer or customer, or a person likely to repeat the statement to or otherwise influence an actual or potential buyer or customer.
The Court conceded that the first element might have been met, due to the likelihood that Yelp makes most of its revenue from advertising. Establishing that Yelp is primarily engaged in the business of selling goods is a virtual certainty. According to Business Insider, over 91% of Yelp’s revenue comes from advertising and most of the advertising revenue comes from local businesses being featured. The Court stated that Demetriade failed to establish the second element because the misrepresentations he was attempting to attribute to Yelp concerned the filtering process or reviews and did not relate to the selling of advertising. The Court also believed that the statements Demetriade amounted to “puffery” and not fact; statements like, “most trustworthy”, “remarkable filtering process” and “most unbiased and accurate information you will be able to find.”
There are some troubling aspects of the Court’s analysis of the facts as they attempted to apply them to the second element of the commercial speech exception test. Part of the reason that the Court said that the statements did not meet the second element of the test, was that they did not misrepresent a fact about the “business operations, goods or services.” The statements in controversy were about the filtering of their reviews, which appears to be a crucial part of their business operations, considering that Yelp is a review site. While the statements, by themselves, do amount to puffery, it would be reasonable to say that, as a whole, the statements are communicating a fact about their review process. The fact that these statements communicate to a reasonable person is that Yelp is a review site that strives for impartiality. While Demetriades did not prevail under the law, as cited in this case, there are other businesses in the California area that have been strong armed by what one judge has called the Yelp “mafia” that may find it useful.
Making Businesses An Offer They Don’t Want to Refuse
As has been established, about three quarters of Yelp’s advertising revenue consists of local businesses wanting to be featured. The advertising revenue is generated by their sales team, which according to Business Insider, makes up a lion’s share of their staff. While it’s understood that sales teams are encouraged to be pushy, the tactics of Yelp sales staff resemble something out of the Stratton Oakmont playbook. Of the 700 complaints that the Federal Trade Commission (FTC) had received about Yelp, most of them allege that they threatened to filter out positive reviews businesses refused to pay for advertising. This happened to a San Diego law firm that was paying for advertising and once they stopped doing so, they noticed their positive reviews disappear. The firm took Yelp to small claims court and won; the judge was so disgusted with Yelp’s practices that he described their practices as similar to the mafia.
So what can local merchants in California do if they see positive results magically disappear for refusing to purchase advertising? Look to the test for the commercial speech exception, as cited in Demetriades v. Yelp. The first element that needs to be met is establishing that the entity is primarily engaged in the business of selling or leasing goods and services; it goes without saying that Yelp meets that element. The cause of action has to arise from a statement or conduct by that entity consisting of representations of fact about that person’s or a business competitor’s business operations, goods or services. Yelp makes a black letter statement on their “about us” page regarding their review site; it says, “The process (referring to the review filtering) has nothing to do with wither a business advertises on Yelp or not.” The third element of the test involves whether the statement or conduct was made either for the purpose of securing sales; the aforementioned statement can be construed to assure potential advertisers that everything regarding Yelp’s review filtering is on the up and up as a way to encourage them to do business with the company. Finally, the intended audience for the statement has to be an actual or potential buyer. Considering that most of Yelp’s advertising revenue comes from local merchants that want to be highlighted, it’s a safe assumption that the local merchants are the intended target of the statement.
While all branches of our Federal government should vigorously defend first amendment rights, uniform action is needed to curtail abusers like Yelp. Review sites like Yelp are hiding behind anti-SLAPP statutes meant to protect and encourage our God given rights to self-expression for the sole purpose of putting main street merchants behind an economic eight ball. The FTC needs to be empowered to analyze algorithms like the one Yelp utilizes and even Google’s algorithm to ensure that they are not becoming tools to defraud business owners. It would be a win-win scenario; their trade secret algorithms would not become disclosed for public knowledge, but the public could rest easier knowing that there is not a system that punishes someone for not buying a particular product or service.