(Reuters) - Yelp Inc has won the dismissal of a lawsuit that claimed it deceived shareholders by overstating the authenticity and quality of consumer reviews on its website, and thereby enabled insiders to sell company stock at inflated prices.
In a decision made public on Wednesday, U.S. District Judge Jon Tigar in San Francisco said reasonable investors would know that not all reviews posted on Yelp were “firsthand,” this being a “common-sense understanding of what it means for a website to host user-generated content.”
Tigar also said Joseph Curry, who is the named plaintiff and seeks class-action status, did not show that Yelp tried deliberately to extort businesses into buying ads or making payments before it would suppress bad or fake reviews.
That practice, which Yelp has denied, had been the subject of consumer complaints filed with the Federal Trade Commission.
“A reasonable investor during the class period was aware that some businesses maintained that Yelp tried to coerce businesses into advertising by manipulating reviews,” Tigar wrote. “The FTC complaints do not make liars out of defendants, because they do not meaningfully alter the ‘total mix’ of information available.”
Tigar also found no basis to conclude that the alleged sale by insiders, including Chief Executive Jeremy Stoppelman, of $81.5 million of Yelp stock before concern about the reviews hurt the stock price, was “unusual” or “out of line” with prior sales.
Yelp lets users rate a variety of businesses, including restaurants, on a five-star scale. Positive reviews can aid sales and negative reviews can harm sales, especially if viewers perceive the reviews as unbiased.
A lawyer for Curry did not immediately respond on Thursday to requests for comment. Yelp did not immediately respond to a similar request.
In February, Yelp filed its own lawsuit to stop the alleged operators of yelpdirector.com from trying to help businesses post positive reviews and suppress negative reviews.
Amazon.com Inc, which also uses a five-star scale, this month sued four websites to block them from selling fake, positive product reviews.
Tigar gave Curry 30 days to amend his complaint. The judge’s decision is dated April 21.
The case is Curry et al v. Yelp Inc et al, U.S. District Court, Northern District of California, No. 14-03547.