businesses and the law of online reviews

By: Domenic Romano & Josh Wueller

More and more consumers are turning to the Internet before making purchasing decisions.  The more than 50 million customer reviews on Yelp bring 120 million visitors to the website each month.  At the same time, online business review sites have found themselves embroiled in increasing legal controversy.

In January, a Virginia court held that businesses have a right to know who is posting phony negative reviews about them.  Yelp has appealed to the Supreme Court of Virginia, which is expected to respond this month.  In addition, the Federal Trade Commission (“FTC”) released a recent report on the thousands of consumer complaints it has received against Yelp since 2008.

Small businesses everywhere are reexamining their online reputations and asking themselves: What can we do about these negative reviews? 

Anonymous reviews

In 2012, a Virginia company, Hadeed Carpet Cleaning, sued 7 anonymous Yelp users who wrote negative reviews about the company.  When Yelp received a subpoena to identify the authors and refused to turn over the information, the trial court held Yelp in contempt.

On appeal, Yelp argued that the court’s order violated its users’ First Amendment right to speak anonymously.  Although the court acknowledged that “[a]n Internet user does not shed his free speech rights at the log-in screen,” it distinguished religious and political speech from commercial messages.  Quoting the U.S. Supreme Court, the Virginia appeals court held that only real Yelp reviews should be protected:

Generally, a Yelp Review is entitled to First Amendment protection because it is a person’s opinion about a business that they patronized.  But this general protection relies upon an underlying assumption of fact: that the reviewer was a customer of the specific company and he posted his review based on his personal experience with the business.  If this underlying assumption of fact proves false, in that the review was never a customer of the business, then the review is not an opinion; instead, the review is based on a false statement of fact—that the reviewer is writing his review based on personal experience.  And “there is no constitutional value in false statements of fact.”

Yelp has appealed the case up to the Virginia Supreme Court.  In April 2014, the state’s high court is predicted to either grant or deny Yelp’s appeal or schedule a hearing for later this summer.

New York’s campaign against fake reviewers

Small businesses aren’t the only ones targeting dishonest Yelp reviewers.  This fall, the New York State Attorney General cracked down on 19 companies specializing in selling false or deceptive reviews to businesses hoping to cheat the system—a process known as “astroturfing.”  The reviews were posted to sites like Yelp, Google Local and CitySearch.

Following the Attorney General’s undercover investigation (codenamed Operation Clean Turf), the companies were required to pay over $350,000 in penalties and have agreed to stop disseminating fake reviews.  Yelp praised the sting operation:

We applaud NY Attorney General Schneiderman for his willingness to tackle the issue of illegal fake reviews head on, and for his success in shutting down these operators.  We look forward to continuing to cooperate with the New York Attorney General’s office and any other interested law enforcement office or regulator to protect consumers and business owners from efforts to mislead.

Small businesses aren’t happy with Yelp’s lack of transparency

The FTC acknowledged last month that it has received over 2,000 complaints against Yelp since 2008.  “That’s one complaint per 1,000 active businesses on Yelp,” says investment research analyst Kevin Kopelman.

Many complaints center around Yelp’s notorious “filtration” process for reviews that Yelp’s algorithms deem to be of a lesser quality.  As one small business owner noted on Wednesday, “On Yelp, they filter and get rid of your good reviews sometimes, or in my case, most of the time.”  Such filtered reviews can be seen on Yelp’s website, by clicking on the obscure link “other reviews that are not currently recommended” at the end of a business’s plainly visible reviews.  Yelp Vice President of Corporate Communications Vincent Sollitto responded: “We might not be able to recommend that review.  Certainly testimonials like that can be posted on her website, but on our website, we have to recommend reviews we can stand behind.”

Some businesses have even accused Yelp of extortion, claiming their positive reviews were filtered and negative reviews brought to the forefront after turning away Yelp advertising representatives.  In response to these claims, one Yelp spokeswoman has said, “There has never been any amount of money you can pay Yelp to manipulate reviews.”

What’s a small business to do?

So your business has gotten some bad reviews, and you don’t think they’re fair—what can you do now?  Start by weighing some of these options:

  • Think twice before striking back.  Like Hadeed Carpet, some small businesses are targeting the reviewers themselves.  Although consumer review websites are generally shielded from liability for defamation under the Communications Decency Act of 1996, the authors of phony ratings are not.  As one law professor notes, however, “there are disincentives for businesses to sue consumers, including the fact that a lawsuit can draw attention to criticisms.”  In addition, many states have enacted anti-SLAPP (Strategic Lawsuit Against Public Participation) laws to restrict how businesses can file lawsuits against their critics.  Small business owners will have to ask themselves: is expensive and risky litigation—and a reputation for suing your own customers—worth a chance of getting rid of that nagging review?   Unless you have strong evidence that the review is fake or purposefully misleading, a demand letter or litigation should not be your first response.
  • Make amends.  In many instances, companies can respond to the negative reviews that they receive.  “Responding to reviews is a great way to learn from and build goodwill with one of your most vocal customers,” says Yelp.  Google Places points out how “[b]usiness owner responses allow you to build relationships with customers.”  By publicly responding to negative feedback professionally—even reviews that seem fabricated—a business can show readers how much it values its customer relationships.  “If you’ve made a business improvement based on a review, thank the user and share the change.”
  • Manage your reputation.  Take active steps to nurture your business’s reputation.  Reputation-based advisory firms like Reputation Institute specialize in creating and integrating a reputation management and measurement system into companies’ business models.  One Harvard study found that an increase of just one star rating on Yelp can increase a business’s bottom line by up to 9%.  Another study by a professor at the Cornell School of Hotel Administration shows that hotels can charge over 11% more for the same rooms when their rating is increased by just one out of five stars.

Experts predict that as many as 15% of online reviews will be fake by the end of this year.  At the same time, the benefits of positive online reviews for small businesses are undeniable.  Hadeed Carpet claims that its profits fell by 30% after receiving questionable negative reviews on Yelp.

How much do you rely on Internet reviews for purchasing decisions?  Has Yelp filtered your business’s positive reviews?  Have you received phony negative reviews online?

Contributing Author: Jessica Cox

Rose - EXT

Domenic Romano

Managing Attorney

(212) 865-9848

Email Domenic

See my full profile

Josh - EXT

Josh Wueller

Senior Law Clerk

(212) 865-9848

Email Josh

See my full profile

Leave a Reply

Your email address will not be published. Required fields are marked *