An Arkansas judge is hearing arguments for and against the settlement of a click-fraud lawsuit that critics say lets Google Inc. off the hook too easily.
In April, Judge Joe Griffin, of Miller County Circuit Court, gave preliminary approval to the proposed settlement of a nationwide class-action lawsuit filed by lead plaintiff Lane's Gifts and Collectibles LLC against Google over the thorny problem of click fraud.
The problem occurs when someone clicks on a pay-per-click ad with a malicious intent. For example, a company official may click on competitors' ads to increase their ad spending, or a publisher may click on his Web site's ads to increase his commissions.
In all cases, advertisers end up paying for clicks that don't generate any business leads. Estimates about click-fraud incidence vary, with some putting it as high as 20 percent of all clicks.
On Monday and Tuesday of this week, Judge Griffin is holding a hearing about the settlement agreement to later decide whether or not to give it final approval.
Lane's Gifts, whose February 2005 lawsuit includes other Internet companies like Yahoo Inc. and AOL LLC, agreed to settle with Google for US$90 million. A third of that amount would go to pay attorneys' fees and the rest as credits to affected advertisers.
The class includes buyers of Google online ads between Jan. 1, 2002, and the date when the agreement becomes final. Advertisers will receive credit for click-fraud instances they can certify.
In the settlement, Google denies the plaintiffs' claims and doesn't admit any wrongdoing or legal liability
However, critics say that the settlement amount is too small and that the agreement terms are too favorable to Google, whose revenue comes almost entirely from pay-per-click ads.
"This is, in our opinion, the most outrageous class settlement that we've seen," said Shawn Khorrami, an attorney based in Van Nuys, California, who represents advertisers in click-fraud lawsuits.
One of Khorrami's clients is Joseph Kinney, who is asking this same Arkansas court to have Lane's Gifts declared as not adequately representing the nationwide class of plaintiffs. In his lawsuit against Google and Lane's Gifts, Kinney also seeks a temporary and permanent injunction blocking their settlement. Kinney also asks the court to stay the Lane's Gifts class-action lawsuit until a decision is rendered in his case.
In a court filing Friday, Google urged Judge Griffin to approve the settlement, saying that 51 members of the affected class have lodged objections, an objection rate which is "just a tiny fraction of a percent." Google described criticisms of the settlement terms as "egregious mischaracterizations."
As part of the settlement, Google commissioned a New York University computer science expert to conduct an independent examination of its click-fraud detection methods. In the 47-page report, the expert, Alexander Tuzhilin concluded that Google is making a "reasonable" effort to fight click fraud.