Will Click-Fraud Suits Hobble Search?

A lawsuit seeking class-action status could be the start of a wider legal challenge to the advertising practices of paid-search providers like Google and Yahoo.

The problem of click fraud in search-based advertising is undergoing intense scrutiny as it moves out of the shadows of the online industry and into the public setting of courthouses nationwide.

Earlier this week, news broke of what could become the first class-action lawsuit against the major providers of pay-per-click ads, including Google Inc. and Yahoo Inc.

That case is only the beginning of an expected wave of class-action and private lawsuits likely to be filed against the search engines as advertisers grow increasingly wary of click fraud, say search experts and attorneys.

"This is something that ought to worry [the search engines] because it opens the door to significant liability based on someone elses wrongful act," said Allonn Levy, commercial litigation attorney with Hopkins & Carley in San Jose, Calif.

Click fraud refers to a practice of purposefully clicking on sponsored listings that appear alongside search results or in the context of content pages in order to rig advertiser auctions and increase revenues.

In typical pay-per-click advertising, advertisers bid on the search terms that would trigger the display of a paid listings. Then they pay for the advertisements when people click on the ads links.

But competing advertisers and Web publishers can abuse the system.

One common form of click fraud occurs when an advertiser attempts to bump a competitor out of a keyword auction by deliberately clicking on the competitors ad to inflate the cost.

In another method, a publisher clicks on the syndicated pay-per-click ads from which it receives a revenue share in order to earn more money.

/zimages/3/28571.gifRead more here about advertiser concerns over click fraud.

A lawsuit filed in February and uncovered this week by the Wall Street Journal accuses 11 search engines and Internet sites of being complicit in click fraud by profiting from it and by not doing enough to prevent it.

The plaintiff in the suit, Texarkana, Ark.-based retailer Lanes Gifts and Collectibles LLC, is seeking class-action certification. The suit, originally filed in Miller County Circuit Court, currently is before the U.S. District Court for the Western District of Arkansas.

Just this week, Google, one of the defendants, filed a motion to dismiss the lawsuit. The plaintiffs, who also include Ft. Lauderdale, Fla.-based detective agency Caulfield Investigations, also plan to file a motion to move the case back to state court, said Joel Fineberg, a co-lead counsel for the plaintiffs.

Other defendants in the suit are Yahoo and its Overture Services division; Time Warner Inc. and its America Online and Netscape Communications divisions; Ask Jeeves Inc.; Buena Vista Internet Group, which runs Go.com; Lycos Inc.; LookSmart Ltd.; and FindWhat.com Inc.

Fineberg said that Lanes is seeking a class action to force the search engines and the affiliate sites that run their sponsored listings to do more to prevent and monitor click fraud. If it moves forward, all advertisers who have purchased pay-per-click ads could become part of the plaintiff class, he said.

"Whether youre a small mom and pop or a large online retailer like Amazon, you should be able to get what you paid for," said Fineberg, whose law firm is based in Dallas.

"The search engines know theres a problem out there, and many advertisers have complained about being billed for inappropriate clicks, or click fraud. After a bunch of techno-doublespeak, unfortunately for advertisers, they are getting very few answers," Fineberg said.

Next Page: When a lawsuit becomes a class action.