The owners of the Santa Barbara, Calif.-based Cats and Dogs animal hospital reported what now seems like a bad joke or a tired gag: a Yelp representative offered to sell them ad space with the promise of lowering negative reviews. They declined the offer, but Yelp allegedly made negative reviews reappear on their page.

Sounds familiar, right?

Well, according to the U.S. 9th Circuit Court of Appeals, Yelp has the legal right to do exactly this.

The Lawsuit and Ruling

Cats and Dogs sued the company along with a few other plaintiffs. In her opinion on the matter, Judge Marsha Berzon wrote that Yelp’s business model is to charge for advertising space. It has the right to charge for legitimate advertising services, and the threat of pushing negative reviews up is little more than hard bargaining.

“It is not unlawful for Yelp to post and sequence reviews,” Berzon wrote, adding that plaintiffs are still free to contend harm. The court believes that Yelp is not sowing any permanent economic harm and that the owners of these businesses failed to provide sufficient evidence that tampering was even occurring.

For its part, Yelp is pleased with this ruling. It believes business owners like those behind Cats and Dogs have some kind of axe to grind with the company and that their claims are unfounded. Further, anecdotal evidence from UT San Diego indicates that Yelp has no preference or visible bias toward paying customers.

Yelp has maintained since day one that its rating and review system is fair and unbiased and that it does not tamper with the ratings of a business that declines paid advertising. The court of appeals basically ruled that Yelp would be in the clear if it wanted to and that’s bad news for small business.

Repercussions for Business

Legal writer Eric Goldman thinks there is still hope for businesses feeling like their rights just got trampled: “Plaintiffs can still chase Yelp using other claims, such as false advertising or securities fraud.”

Goldman points out that this ruling only deals with Yelp and extortion claims. Extortion specifically refers to the practice of obtaining something through force or threats, although there is a much more specific legal definition. Yelp could still find itself in a lawsuit over false advertising, fraud and anything else related to exactly how it handles user reviews. Goldman remarks further: “Consumer review websites often try to sell services to businesses that are reviewed on their websites, which creates an implicit conflict of interest that can make businesses feel like they are being extorted.”

You don’t ask to be put on Yelp. Your business is located automatically using public records available online. Smaller business owners, especially those just starting out, may not even know that Yelp has catalogued them. Yelp does offer some recourse in responding to users who post negative reviews, but this ruling essentially gives Yelp a free ticket to game their own system.

Communications Decency Act

All of this falls under the jurisdiction of the CDA, or Communications Decency Act. This important law outlines how websites are supposed to handle content in light of the growing free market that the Internet represents. It specifically discusses how companies can handle content like pictures or text, and what that meant in terms of liability. One of the important parts of this act allows for Reddit to cease activity around TheFappening, for instance, because users and site admins believe the content is lewd.

Unfortunately, according to defamation attorney Aaron Minc, there is a flip side to this act that shields sites like Yelp from liability. Minc explains that websites have complete control over all third party content, including the right to restrict access to or edit that content. Minc goes on to say, “It’s no small secret that many sites use this power to profit and demand payment in exchange for removing or editing unwanted material.”

It’s also significant that Yelp won this lawsuit, according to Minc, because it is now case law and can be used to defend other sites from this type of accusation in the future.

The Power of Yelp

Yelp is an extremely influential website. According to Nielson and Yelp’s own reporting, 98 percent of consumers who visit businesses they find on Yelp make a purchase. Yelp is consulted almost exclusively in relation to a pending purchase, usually to be made within a week, and it gives a business free exposure that ranks well in search. Nielson further estimates that 44 percent of consumers surveyed use Yelp and that Yelp is considered almost one and a half times more influential and trustworthy than sites like Angie’s List.

The bottom line is this: you have no control over when your business is listed, you can’t pay for positive reviews, you can’t have negative reviews removed and Yelp is free to manipulate your listings. It’s beginning to feel like the deck is stacked. What are your thoughts?