• by Wendy Davis  @wendyndavis, July 14, 2013

Merchants seeking to revive their “extortion” lawsuit against the Yelp faced some hard questions at a recent appellate hearing.

The merchants alleged in a 2010 lawsuit that Yelp offered to bury bad reviews and promote good ones in exchange for ad buys. Their case was dismissed in 2011, when U.S. District Court Judge Edward Chen in the Northern District of California ruled that the Communications Decency Act immunizes Yelp from liability for reviews authored by users, as well as for decisions about how to display those reviews. That law generally says that Web service providers aren't liable for content posted by users.

The merchants appealed to the 9th Circuit Court of Appeals, arguing that the federal law doesn't protect companies that “manipulate” reviews -- such as tinkering with the placement of reviews in exchange for ad purchases.

But the three-judge appellate panel that heard the case last Thursday pointed out that Yelp continually shuffles the order of reviews, and that any changes that occurred after merchants were contacted about potential ad purchases could have been coincidental. “Isn't it true that the number of positive and negative reviews fluctuated regardless of advertising?” one member of the panel asked the merchants' lawyer at the hearing.

The merchants' lawyer, Lawrence Murray, said the case was dismissed prematurely, before the business owners had the opportunity to prove that Yelp changed the mix of positive and negative reviews to persuade companies to advertise.

Another judge, Marsha Siegel Berzon, wanted to know whether the allegations amounted to extortion. “Why is giving somebody something for their advertising extortion?” Berzon asked.

She indicated that a site that gave companies that advertised positive ratings might be misleading consumers, but wasn't necessarily “extorting” advertisers.

The merchants said in their court papers that business owners who purchase monthly ads from Yelp see their “five star summary rating increases immediately and dramatically.” The merchants also alleged that Yelp removed good reviews from companies that declined to purchase ads.

One of the plaintiffs, San Francisco dentist Tracy Chan, alleged that Yelp took down nine of her top five-star reviews within days of her refusal to purchase ads.

Yelp argued at the 9th Circuit that Chen correctly dismissed the case, given that the federal Communications Decency Act provides that Web sites aren't responsible for content posted by users.

But the judges at last week's hearing -- Berzon, Richard Paez and Richard Tallman -- expressed reservations about that position as well. They questioned Yelp's attorney about whether the lawsuit was dismissed prematurely, given that the company is not immune from liability under all circumstances. For instance, Yelp would not be immune if it paid people to write reviews, according to the judges.

One of the judges on the panel said he was “uncomfortable” deciding whether Yelp was immune without more clarity about how the company operated. “The facts are a moving target here, and the facts matter,” he told Yelp's attorney, Ashlie Beringer.

Yelp has always denied allegations that it would bury bad reviews for paying advertisers. Nonetheless, in April 2010, the company agreed to some changes to how it shows reviews. Among others, Yelp said it would stop allowing business owners to pay to have a favorite review highlighted at the top of its page.