Google Proposes $90M Settlement

In 'Click Fraud' Case, But Deal Is Subject To Judge's Approval

(AP)  The Google settlement, announced in early March, already has focused more attention on click fraud.

The shady activity produces revenue for Google, Yahoo and a long list of Web sites that display the ads because the clicks trigger sales commissions even if a referral doesn't produce a sale.

Suspected motives vary. Sometimes Web merchants try to deplete a rival's advertising budget. In other instances, the owners of small Web sites participating in the marketing networks run by Google and Yahoo are believed to click on ads to generate more commissions for themselves.

Complicating the click fraud issue even further, search engine advertising isn't subjected to independent auditing like the advertising done in newspapers, magazines and broadcast media.

In search advertising, Web site owners sign contracts obligating them to pay for all valid clicks - and the search engine has discretion over what is valid.

Google is examining ways to make its fraud-fighting efforts more transparent without revealing crucial information that might help swindlers elude detection, said Shuman Ghosemajumder, the company's product manager for trust and safety.

Outside help also may be on the way.

The class-action settlement requires a report from a yet-undisclosed independent expert to verify that Google has made reasonable efforts to weed out click fraud.

Separately, Minneapolis-based Fair Isaac Co. is studying the issue, drawing on its years of helping lenders fight fraud.

San Antonio-based Click Forensics Inc. recently set up a free service that intends to issue quarterly reports on the frequency of click fraud, compiling information from more than 1,000 advertisers.

The index's initial findings, released in late April, estimated Google and Yahoo suffered a click fraud rate of 12 percent, translating to more than $1.5 billion of Google's ad revenue.

Given those findings, the settlement amount in the Arkansas class action "was very surprising to us," said Tom Cuthbert, Click Forensics' chief executive. "If I were an advertiser, I would take great care in studying that settlement."

Attorneys suing Google in the California case say they will do everything possible to persuade advertisers to reject the Arkansas settlement.

"Google's motto is 'do no evil,' but it's not following its own advice by entering into this kind of settlement," lawyer Brian Kabateck said.

If enough advertisers balk, it might derail the deal. Google has the right to nullify the settlement if advertisers that supplied more than 5 percent of its revenue since 2001 reject the agreement.

Google spokesman Barry Schnitt said Kabateck and his colleagues are trying to rally opposition to the Arkansas settlement so they can revive the California lawsuit in an attempt to drum up more fees for themselves.

Stephen Malouf, a Dallas lawyer who negotiated the Arkansas settlement, doubts advertisers can get a better deal than what Google has offered. "It's easy to take cheap shots now, but what is the alternative and what are the chances of success?"