Will Click-Fraud Suits Hobble Search?

A spokesperson with Sunnyvale, Calif.-based Yahoo declined to comment on the class-action lawsuit. Google, though, said it is ready to defend its advertising program, which accounted for about 99 percent of its revenue in 2004.

"We believe that the suit is without merit, and we will defend ourselves against it vigorously," said a Google spokesman, in a statement.

The Arkansas lawsuit faces hurdles before it officially becomes a class action. The plaintiffs must prove that the issues and facts facing advertisers who have faced click fraud are similar enough to warrant a class-action certification, said Jeffrey Knowles, a commercial litigation attorney with Coblentz, Patch, Duffy & Bass LLP, in San Francisco.

"Part of the problem is its very difficult to figure out what is behind any given click," Knowles said. "Whether or not you can lump all the clicks together and say theres a universe of common issues is uncertain."

The pay-per-click advertising method also is relatively new, meaning that the courts have little legal precedent related to click fraud and little knowledge about the issue, attorneys said.

What does appear clear is that a broad set of online advertisers are complaining about fraudulent clicks affecting their sponsored-listing efforts. Knowles said that advertisers have approached him about bringing a class action against the search engines, a move he decided against.

But others who work directly with tracking down click fraud and seeking refunds from the major ad networks say that more lawsuits are likely this year—both class actions and individual cases against companies like Google and Yahoo.

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Jessie Stricchiola, whose Hollywood, Calif.-based company Alchemist Media Inc. provides click-fraud auditing services, said that some advertisers are taking legal action because the paid-search providers are not doing enough to police click fraud. Though little data exists to quantify the problem, Stricchiola estimates that as many as 25 percent of sponsored-link clicks could be fraudulent.

The search engines need to devote more resources to weeding out syndication partners who are abusing the system, to technology to detect fraud and to customer support to deal with advertiser complaints, she said.

"The reason we havent seen them doing something about click fraud as aggressively as they could be is because all they would be doing is investing more money to put less money in their pockets," Stricchiola said.

Whos responsible for click fraud? Click here to read one opinion about where the blame lies.

While the search engines may not be the ones directly committing the fraud, Stricchiola said that they bear a responsibility to safeguard their advertising technology, just as a bank bears a responsibility to secure its automated teller systems against fraud.

But others doubt that suing the search engines and ad networks directly will be the most effective route for combating click fraud. To Levy, the stronger cases would be ones that target the perpetrators of the fraud.

Google, of Mountain View, Calif., last year filed a click-fraud lawsuit against a partner site that had used its syndicated ads through the AdSense program, accusing the site of purposefully clicking on ads to earn more revenue.

"The bigger question in my mind is if Google and the other search engines will face liability," Levy said. "Whether or not the company selling the ad service is liable is an open question."

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