As Yelp Rises, Free Speech and Business Reputations Can Conflict

By Charley Moore | February 24, 2012

Yelp is a blessing for some local businesses, and a curse for others...

Charley just used Yelp to find a good Ethiopian restaurant in Washington, DC (thanks for the free extra injera Queen of Sheba!), and Eva just “Yelped” Krua Thai for dinner last night in San Francisco.

If, like us, you use Yelp, you know how much of a godsend it can be when you are in an unfamiliar neighborhood, hungry or just looking for a good watering hole. Search for what you want and chances are, the Yelp community has posted reviews about local establishments that may or may not be right for you.

As we’ve said before, the site can be a great resource both for consumers, and for businesses hoping to increase foot traffic with a stream of positive reviews. It’s a great idea, but Yelp has also found itself walking the fine line between free speech and defamation.

For small business owners, reputation is all important. So, while good Yelp reviews can be valuable, bad reviews (even where untrue) can be disastrous. It all depends on the tone and content of the public posts. While some businesses will benefit from the free, positive, publicity, others will face bad reviews and have very little recourse to counter negative information, whether it is fair or unfair.

Businesses can respond to poor reviews publicly, but sometimes when a business feels especially harmed by review that it considers to be false or misleading, it chooses to litigate.

These lawsuits (whether targeted towards Yelp for their role in the publication, or at individual reviewers) pose a key risk to Yelp’s business model and may have chilling effects on free speech.

In the Risk Factors of its IPO registration statement, Yelp refers explicitly to legal actions:

We face potential liability and expense for legal claims relating to the information that we publish on our website and mobile app, including claims for defamation, libel, negligence and copyright or trademark infringement, among others.

While we attempt to filter or remove content that may be offensive, biased, unreliable or otherwise unhelpful, we cannot guarantee the effectiveness or adequacy of these efforts. If we fail to filter or remove a significant amount of content that is biased, unreliable, or otherwise unhelpful, or if we mistakenly filter or remove a significant amount of valuable content, our reputation and brand may be harmed, users may stop using our products and our business and results of operations could be adversely affected.

Thus, here is yet another example (think Facebook and Twitter) of a private company acting as an arbiter of free speech, more frequently than any government agency or court.

Further, even when there is active government regulation, Yelp also finds risk. The company has faced allegations of unfair business practices and running an “extortion scheme” — allegations that culminated with a serious class action lawsuit back in February 2010.

Th suit was filed on behalf of a veterinary hospital in Long Beach, Calif., who asked Yelp to remove what it called a “false and defamatory review” from its site. At the time, the suit claimed, Yelp’s employees “call[ed] businesses demanding monthly payments, in the guise of ‘advertising contracts,’ in exchange for removing or modifying negative reviews appearing on the Web site.”

This confusion surrounding paying advertisers, and their ability to choose a ‘favorite review’ to feature at the top of their profile page, led Yelp to discontinue this practice as soon as April of the same year. In the name of transparency, and better business practice, Yelp decided to remove this aspect of commercial speech from their site.

As for the lawsuit, the case was dismissed and an appeal is currently pending before the 9th circuit court. Still, Yelp needs to continue refining its business practices to limit the likelihood of other lawsuits of this kind, and in so doing maintain its advertising model or else find another revenue source.

It will also need to continue supporting its volunteer reviewers, who are creating the speech in the first place. Without reviews, good and bad, it is hard to see how Yelp will stay relevant and useful, as it has been to our searches for good Ethiopian food and Thai food! Stories of reviewers being sued for defamation should get Yelp’s attention. With the IPO, the spotlight and visibility of first amendment. i.e., freedom of speech and defamation claims will only increase.