March 9, 2006

A Google representative says it has agreed to settle a class-action lawsuit that accused it of incorrectly charging advertisers for fraudulent clicks on their Internet ads.

Google said that as part of the proposed settlement, it would reimburse advertisers for up to a maximum lump sum of $90 million in ad credits.

Disclosed on Google's blog yesterday, the out-of-court agreement is a major development in the online search industry, which some say is rife with click fraud.

Many Internet marketers complain that Google doesn't do enough to combat the growing problem of click fraud and that its clients are suffering important financial losses as a result.

According to Fathom Online, Internet advertisers pay Google an average of $1.43 each time a user clicks on their ads. But in some cases, scam artists repeatedly click on those ads to cause a rival company to be overcharged.

Lane's Gifts & Collectible, a retailer in Texarkana, Ark., was the lead plaintiff in the suit, which was filed in an Arkansas state circuit court. An attorney for the company did not return a telephone call for comment.

Ask.com, the Oakland search engine, and also a defendant in the class action, said Wednesday that it expects to be removed from the lawsuit because of Google's settlement. Ask.com was part of the litigation only because it displayed Google's ads.

The lawsuit also named Yahoo Inc. as a defendant. However, unlike Google, the Sunnyvale Web portal said Wednesday that it plans to defend itself vigorously against the accusations.

The terms of Google's settlement allow advertisers to apply for credits for clicks they believe were invalid. Normally, Google gives advertisers 60 days after the suspect clicks to apply.

However, as part of Wednesday's agreement, advertisers can apply for credits for invalid clicks back to when Google introduced its online advertising system, called AdWords, in 2002. Google will decide whether to award the credits.

Nicole Wong, associate general counsel for Google, said the settlement "is further proof of our willingness to work together with advertisers to reimburse invalid clicks."

Andy Beal, chief executive at Fortune Interactive, an online advertising company, called the settlement a good outcome for Google because it doesn't have to pay advertisers, only reimburse them with credits.

Compared with the billions of dollars Google has made from search engine advertising, he said, the amount of the settlement is tiny.

As for click fraud, Beal said the problem continues. "Don't think it's an issue that is closed," he said.

Source: SF Gate

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