March 25, 2011
Yelp Beats "Implied Extortion"/"Pay-to-Play" Lawsuit in Round #1--Levitt v. Yelp
By Eric Goldman
Levitt v. Yelp, 3:10-cv-01321-MHP (N.D. Cal. Mar. 22, 2011). See the motion to dismiss, the opposition and the reply. This ruling deals with the Second Amended Complaint. Levitt's initial complaint. Cats & Dogs Animal Hospital's first amended complaint.
This lawsuit rolls up several "pay-to-play" lawsuits against Yelp, all alleging that Yelp manipulated star ratings and user reviews based on whether or not businesses bought advertising from Yelp. Judge Patel reinterpreted the plaintiffs' allegations as claims of "implied extortion." (It wasn't express extortion because Yelp never explicitly threatened to harm their businesses if they failed to advertise). In this ruling, Judge Patel grants Yelp's 12(b)(6) motion to dismiss. However, she gives the plaintiffs leave to amend, so the case isn't over yet.
Judge Patel taxonomizes the plaintiffs' allegations into four groups:
"1) Yelp removed positive reviews, thereby changing the overall star rating, immediately after plaintiffs declined to purchase advertising or terminated their advertising contracts
2) Yelp maintained negative reviews even though the reviews violated Yelp’s Review Terms
3) Yelp manufactured its own negative reviews of plaintiffs’ businesses
4) Yelp stated that paying for advertising would help Plaintiff’s overall star rating because Yelp “tweaks” the ratings, “manually adds and removes reviews in its own discretion” and its employees have the ability to remove reviews"
None of these survive the 12(b)(6) motion, but for different reasons.
The court says #2 (continuing to publish negative reviews) is preempted by 47 USC 230(c)(1). Stitching together various statements from Roommates.com and Barnes, she says "Yelp cannot be held liable on a theory that it extorted plaintiffs by refusing to de-publish negative business reviews."
In contrast, 47 USC 230 doesn't preempt #3 (Yelp manufacturing fake reviews). Citing her own Mazur opinion from 2008, she also says #4 isn't preempted.
47 USC 230's preemption of #1 (removing positive reviews for failing to buy ads) is a "closer question." The judge concludes it isn't preempted for two reasons. First, "Choosing not to publish content for the purposes of harming a particular business or to coerce that business into purchasing advertising seems quite distinct from the traditional editorial functions of a publisher." Second, 230(c)(2) only applies when the filtering decision is exercised "in good faith," and the alleged conduct wouldn't qualify (citing Smith v. TRUSTe, which was just reversed by the district court in an opinion I need to blog, and the National Numismatics case).
So allegations #1, #3 and #4 survive the 47 USC 230 preemption challenge. Nevertheless, they still fail.
First, the plaintiffs' factual assertions are "entirely speculative": "The SAC provides no basis from which to infer that Yelp authored or manipulated the content of the negative reviews complained of by plaintiffs."
Second, the plaintiffs haven't adequately alleged that Yelp communicated an extortionate threat. The plaintiffs show correlation between Yelp's offers and good/bad consequences but do not show causation, and the mere fact of a correlation doesn't communicate a threat. The judge noted alternative hypotheses to explain the plaintiffs' experiences: "These fluctuations could just as easily be the result of planted ads by plaintiffs, the functioning of Yelp’s automated filter, or negative attacks from competitors or former employees." The various statements allegedly made by Yelp's salespeople don't change the analysis--Levitt was just promised more pageviews if it advertised, Paver Pro didn't talk to the salespeople at all, and with respect to Chan/Cats & Dogs Animal Hospital, "offers of favorable treatment in exchange for ad purchases are not the equivalent of an extortionate threat of harm."
Although this ruling is a little less 47 USC 230 favorable than I would have liked, overall this ruling is a fairly sensible assessment of the situation. However, as usual for consumer-oriented litigation like this, the opinion does set up a squeeze for the plaintiffs. Judge Patel wants the plaintiffs to provide a better causation story, but much of the evidence that might support the causation story is likely to be obtained only through discovery--which the plaintiffs won't get if they can't get past the 12(b)(6) motion to dismiss.
A final thought: given the discussion about implied extortion, I was surprised that the court didn't explore Reit v. Yelp (which also advanced the implied extortion claim as a 230 workaround) or the multitudinous Ripoff Report cases, many of which have addressed the 230/extortion interface.
[I have several other 47 USC 230 cases to blog, including Hill v. StubHub, the Holomaxx cases and Smith v. TRUSTe. I'll blog them as soon as I can!]
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