Will Click-Fraud Suits Hobble Search?

By Matthew Hicks  |  Posted 2005-04-08

Will Click-Fraud Suits Hobble Search?

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.

Read 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.

When a Lawsuit Becomes

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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.

Click here to read more about vendor tools being sold to detect click fraud.

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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