Google's settlement of a class-action lawsuit this week goes a long way toward protecting the company from litigation related to click fraud, a problem some say could cripple Google's
business.
When an Arkansas judge gave final approval to the $90 million settlement, all but several hundred Google advertisers tacitly
forfeited their right to sue the company over click-fraud instances dating back to Jan. 1, 2002.
Along the way, Google admitted to no wrongdoing or liability, made no formal commitments to improve its click-fraud detection
mechanisms and will only have to pay a third of the settlement in cash -- all for plaintiffs' attorney fees -- while the rest
will take the form of future credits for advertisers.
"This is a big win and a very good deal for Google. For a comparatively trivial amount of cash, Google has cleaned up a significant
amount of potential liability related to click fraud," says attorney Eric Goldman, professor and director of the High Technology
Law Institute at Santa Clara University School of Law.
The $60 million allotted for ad credits is a worst-case scenario. It's likely only a fraction -- some estimate no more than
$12 million -- will be claimed.
Not surprisingly, Google is pleased that the settlement was approved, though has declined to comment on the case beyond a
written statement released Thursday. "We're pleased Judge Griffin has affirmed the settlement as appropriate and fair to advertisers,"
Nicole Wong, Google associate general counsel said in the statement. "We look forward to continuing to manage invalid clicks
effectively and provide our advertisers with an outstanding return on their investment."
Even the full amount is a small price to pay if click-fraud estimates of 20 percent are accurate. Google, with revenue of
$6.14 billion in 2005, generates most of its money from pay per click ads, the type that is vulnerable to click fraud. Click
fraud happens when someone clicks on an ad maliciously, to drive up a competitor's ad spending or to increase his own commissions.
Still, the settlement isn't a complete win for the Mountain View, California, search engine company. The litigation specter
still lurks, because 556 members of the affected class opted out of the settlement, retaining their ability to sue Google
over click fraud.
"The reason anyone settles is to buy peace. If you have 500 or 600 potential plaintiffs out there, this is only a purchase
of partial peace," says Aitan Goelman, partner with Zuckerman Spaeder LLP in Washington, D.C.
And Google may find itself with some explaining to do in future cases due to information about a click-fraud practice that
was revealed in a court-ordered, independent report and that some find alarming.
The otherwise positive report about Google's efforts to combat click fraud, states that Google didn't stop charging advertisers
for so-called double-clicks until March 2005. A double-click is when the same user clicks a second time on the same ad immediately
after the first time.
"Double-clicking is prevalent in normal browsing behavior," says Kevin Lee, executive chairman and co-founder of Did-it.com
LLC, a search engine marketing firm. "That's a lot of invalid clicking activity that should have been credited back to advertisers."
Lee had been under the impression that Google had stopped charging for double clicks years earlier. "I was surprised and disappointed
to learn this," he says. He thinks that if people had known how long Google charged for double clicks, more advertisers might
have opted out of the settlement.
This also took Eric Goldman aback, who says Google should unilaterally credit advertisers for those double clicks.
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