The Virginia Supreme Court ruled that lower courts in the state did not have jurisdiction over Yelp because the company was located in California and its data being sought was stored in that state. (Tim Boyle/Bloomberg)

The Virginia Supreme Court ruled Thursday that a judge did not have the authority to compel Yelp to reveal the identities of anonymous users who panned an Alexandria carpet-cleaning company in a case closely watched by free-speech advocates and businesses alike.

The decision sidestepped the thorny conflict at the heart of the case: Where do the First Amendment rights of Internet users to speak anonymously end and the rights of a company to defend its reputation begin?

Instead, the Virginia Supreme Court ruled that lower courts in the state did not have jurisdiction over Yelp because the company was located in California and the data that Hadeed Carpet Cleaning sought was stored in that state.

Paul Alan Levy, a Public Citizen lawyer representing Yelp, welcomed the ruling, saying ­Hadeed would have to pursue the reviewers’ identities in California courts, which set a higher bar for revealing the identities of people making anonymous speech.

“If Hadeed turns to California courts to learn the identities of its critics, those courts will require it to show evidence to meet the well-accepted First Amendment test for identifying anonymous speakers,” Levy wrote in a statement.

“And so far, Hadeed has not come close to providing such evidence.”

The case began in 2012 when Hadeed filed a defamation lawsuit against seven Yelp reviewers, claiming their reviews were probably false because no evidence could be found they were customers. Hadeed said the negative reviews had hurt its business.

Hadeed subpoenaed the reviewers’ identities from Yelp, and an Alexandria Circuit Court judge ordered that the information be turned over.

Yelp refused to comply with the ruling, saying it would appeal to protect its users’ First Amendment right to speak anonymously.

Yelp and free-speech advocates said revealing the names of the reviewers would have a chilling effect on anonymous speech on the Web.

Businesses say false reviews are hurting bottom lines as Yelp, Angie’s List and other review sites become increasingly important in shaping customer’s decisions about where to spend money.

Yelp argued in filings with the Virginia Court of Appeals that Hadeed needed to offer compelling evidence that the reviews were false before the courts could scuttle the reviewers’ First Amendment right to speak anonymously — a standard followed in many states.

But the appellate court sided with Hadeed, saying the company had met the lower standards laid out in Virginia law.

It ruled that free speech “must be balanced against ­Hadeed’s right to protect its reputation.”

Yelp then appealed to the Virginia Supreme Court.

Raighne C. Delaney, an attorney for Hadeed, said Hadeed had not decided whether to pursue the case in California but said he disagreed with the ruling and would like the General Assembly to make it easier to pursue cases involving out-of-state companies.

“It’s a real blow for the large number of businesses that ­have issues with Yelp,” Delaney said.