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April 05, 2005
Internet Firms Face Legal Test On Advertising Fees
A group of advertisers quietly filed a lawsuit in February against Google Inc., Yahoo Inc. and other Internet companies in a potentially important legal test of those companies' liability for a form of online-advertising fraud.
The plaintiffs, led by Lane's Gifts & Collectibles LLC, a Texarkana, Ark., retailer, allege that the Internet companies knowingly overcharged for advertisements they sold and conspired with each other to continue doing so. The plaintiffs are seeking to have their suit, which hasn't received widespread attention, certified as a class action.
The suit concerns a growing search-industry problem of "click fraud," in which someone clicks on online ads with ill intent. Advertisers generally pay Google, Yahoo and others based on the number of times people click on their ads displayed alongside Web-search results, with each click costing roughly 50 cents on average. By repeatedly clicking on the ads, or using software programs to automate the clicking, fraudsters can run up ad charges for rivals.
The suit, filed in Circuit Court in Miller County, Ark., alleges that the search companies improperly charged the plaintiffs for such fraudulent clicks. The Lane's suit also names as defendants Time Warner Inc. and its America Online unit; Ask Jeeves Inc.; Walt Disney Co.'s online unit; Daum Communications Corp. subsidiary Lycos Inc.; LookSmart Ltd.; and FindWhat.com Inc.
An Ask Jeeves spokeswoman said the company was evaluating the lawsuit. LookSmart and Lycos spokeswomen declined to comment. Officials at the other companies, including Google and Yahoo, confirmed that they were aware of the suit but declined to comment.
Ask Jeeves, which recently agreed to be acquired by IAC/InterActive Corp, warned in a March regulatory filing that "we intend to defend this lawsuit vigorously," and that advertisers may become less willing to buy search-related ads if they come to perceive click-fraud as a pervasive problem.
The search engines have antifraud systems and sometimes issue refunds for bogus clicks. But they decline to comment in detail on the scope of the problem, exactly how they are fighting it, and any specific instances of click fraud, in part because they don't want to tip off fraudsters. That has fed some advertisers' fears that the problem is bigger than the search companies acknowledge. Estimates of click fraud run as high as 20% of all clicks on search ads.
Write to Kevin J. Delaney at kevin.delaney@wsj.com
By KEVIN J. DELANEY
Staff Reporter of THE WALL STREET JOURNAL
April 5, 2005; Page B8
Posted by Hans A. Koch at April 5, 2005 03:34 PM