Watch CBSN Live

Facebook's Click Fraud Scandal Grows with Second Lawsuit

Reading this morning about a second Facebook click-fraud suit should leave anyone interested in the social network's monetization model queasy. What this complaint, from the software company Unified ECM, and one from earlier this month, alleges, is that Facebook is charging advertisers for "non-existent, fraudulent or invalid clicks." (As many Facebook advertisers buy on a cost-per-click basis, the more clicks, the more revenue that goes into Facebooks' coffers.) In a sign this problem could snowball, Unified ECM cites the TechCrunch post -- as reprinted by The Washington Post -- that started it all back in June, and is requesting that its suit be turned into a class action. If the judge grants this, something potentially disastrous could unfold for Facebook: the piling on by scores of small advertisers, who believe they, too, have been victimized by Facebook click fraud. Being part of a class will lessen the legal costs for any one advertiser, and since we're talking here about advertisers who are the Internet version of the mom-and-pop store, joining a class action could prove tempting. Facebook emailed me this statement regarding the Unified ECM suit:
The goal of our advertising programs is to deliver value to advertisers and, as a result, we take click quality very seriously. We have developed a series of sophisticated systems to detect anomalous activity and ensure advertisers are not charged for this activity. In addition, we analyze tremendous amounts of data to discern larger click patterns and, in rare cases where this research, other analysis, or advertiser questions reveal charges for invalid clicks, it is our practice issue credits to impacted advertisers. While we're pleased at the opportunity to shed some light on the systems and policies we've established and continue to improve to protect advertisers, this litigation is unnecessary and baseless.
As with Unified ECM, the earlier plaintiff, sports site RootZoo, pointed to massive discrepancies between what its own analytics said were the number of clicks on the ads it had run on Facebook, and what Facebook counted, and charged it for. On one day, its lawsuit claims, Facebook charged the company for 804 clicks, while its own tally said there were only 300. That's click inflation of more than 150 percent. RootZoo is no longer a Facebook advertiser. (Most click inflation reported is lower, but still high enough to be of concern.) The suits came after a numerous complaints by small advertisers that Facebook was routinely counting more clicks on ads on the service than the advertisers were. Facebook did respond to the June TechCrunch post, saying:
Over the last few days, we have seen an increase in suspicious clicks. We have identified a solution which we have already begun to implement and expect will be completely rolled out by the end of today. In addition, we are identifying impacted accounts and will ensure that advertisers are credited appropriately.
But there are problems with that explanation. For instance, Rootzoo's complaints of click fraud go back much farther than over the couple of days before the TechCrunch post ran. It advertised on the service only from November of 2007 to June of 2008, ending its flight nearly a year before Facebook rolled out its fix. In the new complaint, Unified ECM cites the very same quote, and uses it against Facebook. The heart of the complaint is this:
Facebook has not appropriately credited the effected advertisers [referring to the above], including Plaintiff and the Class. When customers become the victim of Click Fraud, Defendant fails to advise them that they have been victimized, and fails to refund them the full excess charges that they have incurred as a result of the fraudulent click activity. Defendant knows, and at all relevant times hereto has known, that Click Fraud is rampant on its system. Defendant has failed to take any significant measures to track or prevent Click Fraud, and fails to adequately warn its existing and potential customers about the existence of Click Fraud. Defendant has an inherent conflict of interest with respect to Click Fraud, because it derives the same amount of revenue from a fraudulent click as it does a legitimate click.
Before I start talking here about potential motives, let's make it clear that, despite the plaintiff's assertions, there's no evidence that Facebook has done this knowingly, though after two lawsuits and scores of other complaints it seems clear that whatever click data is sitting on Facebook's servers, it doesn't always match what some advertisers are seeing using their own analytics.

But even if there's no intent here on Facebook's part to engage in click fraud, you could make an argument about benign neglect -- benign as far as Facebook is concerned, that is. It's no secret that Facebook monetization is a work in progress, and that the company has committed to an aggressive revenue goal of $550 million for 2009, more than twice what it made in 2008. Under similar circumstances, it could get very easy for some companies to get sloppy about click fraud, which, of course, Facebook is saying it isn't. Stay tuned.

Previous coverage of Facebook at BNET Media:

View CBS News In