In the last few weeks, two different California small business owners have filed class action lawsuits against Yelp! Inc. (“Yelp”), alleging that the company’s sales representatives use unfair business practices to sell advertising on Yelp.com. Specifically, each complaint alleges that Yelp.com sales representatives manipulate postings on particular Yelp.com listing pages to reward small business owners that purchase Yelp.com advertising and punish those who do not.

Yelp! Inc. runs Yelp.com, an online directory of businesses, on which consumers may post ratings and reviews of local businesses. Yelp.com launched in 2004 and has become increasingly popular; it boasts 26 million users per month. One of the website’s revenue streams derives from small businesses that purchase advertising subscriptions to increase their presence on the site.

The recent lawsuits, Cats & Dogs Animal Hosp., Inc. v. Yelp! Inc., No. 10-cv-1340 (C.D.Cal. Feb. 24, 2010) and LaPausky v. Yelp! Inc., No. 10-cv-1578 (C.D.Cal. March 3, 2010), allege that Yelp sales representatives promise to remove or hide negative reviews if small business owners purchase pricy advertising contracts. When business owners decline these advertising packages, the complaints allege, Yelp employees threaten to and do manipulate the website’s listings to highlight negative reviews of those businesses. The complaints further allege that Yelp has, on at least one occasion, paid an employee to write a negative review of a business that failed to purchase advertising.

Both complaints claim that Yelp’s actions violate California’s laws against unfair business competition. The Lapausky complaint also appears to allege violations of California’s law against extortion, as well as violations of the federal Racketeer-Influenced Corrupt Organization Act and Computer Fraud and Abuse Act. Both complaints seek class certification, as well as permanent injunctions restraining Yelp from its illegal business practices, disgorgement of unjust profits, restitution, and attorneys’ fees.

Yelp CEO Jeremy Stoppelman has denounced the lawsuits as without merit, and has vowed to fight both aggressively. On Yelp.com’s blog, he has stated that Yelp’s advertising staff is prohibited from either creating or manipulating the website’s review content.

These cases illustrate the potential pitfalls faced by companies that engage in aggressive sales practices. To find out more information about these purported class actions, as well as Arent Fox’s counseling services in the field of Internet advertising and sales, please contact Anthony V. Lupo.