Advertiser sues Google over click fraud

Google knows that click fraud is rampant in its pay-per-click advertising program and hasn't seriously attempted to prevent this practice of individuals clicking on ads with malicious intent, an advertiser has charged in a lawsuit filed against Google.

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Click Defense claims it was the victim of click fraud when it advertised on Google's AdWords program earlier this year, and has filed a lawsuit alleging breach of contract, negligence, unjust enrichment and unfair business practices.

Google believes the lawsuit is without merit, said Mike Mayzel, a Google spokesman. "We will defend ourselves vigorously," Mayzel said. He declined to comment any further on the specific allegations being leveled against the Mountain View, California, company.

Click Defense, an application service provider based in Fort Collins, Colorado, knows a thing or two about click fraud: its specialty is helping customers enhance their online advertising campaigns and monitoring for click fraud.

In its lawsuit, filed last week in the U.S. District Court for the Northern District of California, San Jose Division, Click Defense alleges that Google is aware that due to click fraud, the ads it sells are worth "significantly less" than what advertisers pay Google for them. Click Defense also accuses Google of not "adequately" warning customers about the existence of click fraud and of not "adequately" alerting them and refunding them when they become victims of this practice.

"Google has an inherent conflict of interest in preventing click fraud since it derives the same amount of income from each fraudulent click as it does from each legitimate click," Click Defense claims in the lawsuit.

Click Defense is asking the court to allow the lawsuit to proceed as a class action, to award it and the class damages of at least $10 million and to require Google to refund it and the class the money they have paid to Google resulting from invalid clicks.

The problem of click fraud has become a hot topic recently. A common type of click-fraud perpetrator is a company official who clicks on competitors' ads, knowing that every time he does that, it costs his competitors money. Another common type of click-fraud practitioner is the publisher of a Web site which runs pay-per-click ads, because the more the ads on his site are clicked on, the more commission money the publisher receives.

In its lawsuit, Click Defense says some industry analysts put the incidence of click fraud at up to 20 percent of all clicks, and points out that in December 2004, Google Chief Financial Officer George Reyes described click fraud as "the biggest threat to the Internet economy."

In its 2005 annual report, Google addressed click fraud, saying it has "regularly" refunded advertisers due to this practice, and that those refunds may increase if Google is unable to curb this activity. Moreover, Google acknowledged that if new evidence of past fraudulent clicks emerges, it may have to issue retroactive refunds that would negatively affect its bottom line and could hurt its brand.

"If fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment in our advertising programs because the fraudulent clicks will not lead to potential revenue for the advertisers. This could lead the advertisers to become dissatisfied with our advertising programs, which could lead to loss of advertisers and revenue," the annual report reads.

Google, which has systems and staffers in place to monitor and detect click fraud, doesn't disclose its click-fraud percentage, Mayzel said.