June 30, 2005
Google Sued Over ‘Click Fraud’ in Web Ads
SAN FRANCISCO (Reuters) - A seller of online marketing tools said on Wednesday it sued Google Inc., charging that the Web search giant has failed to protect users of its advertising program from "click fraud," costing them at least $5 million.
Click Defense Inc. filed its lawsuit, which also seeks class action status, on June 24 in U.S. District Court in San Jose, California.Click fraud is not "fraud" as defined under the law. Rather, it is an industry term used to describe the deliberate clicking on Web search ads by users with no plans to do business with the advertiser. Rival companies might employ people or machines to do this because the advertiser has to pay the Web search provider for each click.
Users of Google's popular Web search advertising program pay a set amount -- varying from pennies to well over $1 -- for each click, though in rare instances, the payment is as much as $95.
Click fraud can run up thousands of dollars in advertiser costs or benefit a Web site operator that gets a cut of advertising revenue from Internet search providers.
"We believe the suit is without merit and we will defend ourselves against it vigorously," a Google spokesman said.
Google, which had first-quarter net revenue of $1.3 billion, makes virtually all of its money from search ads.
The company, whose stock earlier this week briefly topped $300 after debuting at $85 in August, has previously said that click fraud is not material to its results and that it has technology and teams working to prevent it.
Google and its top rival, Yahoo Inc., have declined to say what percentage of clicks would fall under click fraud. The figure most cited by independent firms that track the practice is around 20 percent.
Scott Boyenger, chief executive of Colorado-based Click Defense, said in an e-mail that his company's tracking system has detected click fraud rates of as high as 38 percent. The company sells software to prevent click fraud.
Google and Yahoo, which is not named in the lawsuit, let advertisers set per-click pricing by allowing them to bid on key words that launch ads when Web users enter matching search queries.
For example, when Web users type "laptop computer" into Google.com, they will see search results as well as a section of ads from laptop makers or sellers.
Google has said it credits advertisers who have fallen prey to click fraud, but Click Defense charges that the company has not done enough to warn advertisers about the risks it presents or to protect them against it.
Click Defense, which advertises on Google.com, is among a new crop of companies that aim to help identify and stop click fraud. Its rivals include Alchemist Media and ClickDetective.
Digital marketing companies aQuantive Inc. and DoubleClick Inc. also have units that help advertisers tackle click fraud.
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