Antitrust Law Daily Wrap Up, ADVERTISING—Cal. App.: Claims that Yelp falsely advertised efficacy of review filter revived, (Jul 25, 2014)

By Greg Hammond, J.D.

Popular online website yelp.com is facing allegations it violated California’s Unfair Competition Law (UCL) and False Advertising Law (FAL), by misleading businesses as to the efficacy of the website’s customer review filter. In reversing the trial court’s order striking a restaurant operator’s complaint, the California court of appeals in Los Angeles determined that the lower court erred in finding that Yelp’s statements regarding its review filter were not commercial speech (Demetriades v. Yelp, Inc., July 24, 2014, Johnson, J.).

Yelp’s filter software. Yelp, Inc. runs a social media website and search engine that allows consumers to rate and review businesses. Having over 33 million reviews on its website, and attracting tens of millions of consumers each month, the company faces the persistent challenge of unreliable reviews—those that are written by employees, relatives, friends, competitors, or are paid for. Consequently, the site developed and launched filter software in 2005 to weed out such unreliable reviews. Although the company admits that its filter is not “foolproof” and makes mistakes, restaurant operator James Demetriades filed suit, alleging the company violated the UCL and FAL in making various false statements about the filter.

The statements in question include: “Yelp uses a filter to give consumers the most trusted reviews;” “Rest assured that our engineers are working to make sure that whatever is up there is the most unbiased and accurate information you will be able to find about local businesses;” and “All reviews that live on people’s profile pages go through a remarkable filtering process that takes the reviews that are the most trustworthy and from the most established sources and displays them on the business page. This keeps the less trustworthy reviews out so that when it comes time to make a decision you can make that using information and insights that are actually helpful;” among others. However, Demetriades claims that the filter does not work, as it removed 50 of 102 reviews for one of his restaurants, and failed to filter a negative review that contained false statements about the establishment.

The trial court granted Yelp’s special motion to strike, finding that: (1) the statements it made were matters of public interest; (2) the commercial speech exemption to the anti-SLAPP statute set forth in Code of Civil Procedure section 425.17 did not apply; and (3) Yelp’s statements regarding its filter were “puffery” and opinion, not statements of fact. Demetriades appealed the decision.

Commercial speech exemption. According to the court, a statement will fall under the commercial speech exemption if: (1) it consists of representations of fact regarding the company’s business operations, goods, or services, and was made for the purpose of obtaining approval for, promoting, or securing sales or leases of the its goods or services; and (2) the intended audience is 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 concluded that Demetriades’ claims satisfied both prongs of the commercial speech exemption analysis. Preliminarily, it determined that the website is a public forum and that the reviews of restaurants and businesses are matters of public concern. In addition, the court found that Yelp’s statements are commercial speech about the quality of its product, the review filter, and are intended to reach third parties in order to induce them to patronize Yelp’s website, which thereby encourages business to purchase advertising on Yelp. Because the court found that the commercial speech exemption applied, the trial court’s order granting the company’s special motion to strike was reversed.

The case number is B247151.

Attorneys: Robert M. Waxman and David N. Tarlow (Ervin Cohen & Jessup) for James Demetriades. Laura W. Brill and Nicholas F. Daum (Kendall Brill & Klieger) for Yelp, Inc.

Companies: Yelp, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews