Whether major Internet players are overcharging for pay-per-click advertising–including charges for ad traffic not generated by actual customers–is the subject of a lawsuit filed by a Texarkana gift shop against three of cyberspace’s biggest search engine names.
Lane’s Gifts and Collectibles has hit America Online, Google, and Yahoo with litigation they hope becomes a class-action suit, with themselves as the lead representative for several other businesses. The basis for the suit against the abovementioned three and other Net companies is Lane’s accusation of collusion to overcharge for ads.
“[They] have grown the Internet [pay-per-click] advertising market while failing to disclose that they have routinely and systematically overcharged and/or over-collected for (pay-per-click) advertising revenue from their customers,” reads the lawsuit that was filed in February. Lane’s claims that these ads get clicked only too often by people looking to generate bigger bills for the advertisers and not by people who truly want more information.
Businesses pay Internet companies fees based on the number of times their ads get clicked on those companies’ websites, and the clicks bring would-be customers to other pages for more information. Click fraud has become a growing concern in recent months, however, and just how widespread and costly it is in the $3.8 billion search engine advertising market remains open to speculation.
The defendants in the suit—which also include Overture, Time Warner, Netscape, AskJeeves, Buena Vista Internet Group (for Go.com), Lycos, LookSmart, and FindWhat.com—asked to have the case moved from state to federal court March 30, but Lane’s and their co-plaintiffs are expected to oppose that motion, according to Michael Androvett, a spokesman for their attorneys. Two of the original plaintiffs are said to have asked to be dropped from the suit this week, but published reports also indicate they asked to keep their right to return to the suit later.
Of the three main defendants in the case, only Google has commented about the Lane’s lawsuit, with representatives saying they were reviewing the litigation charges but nothing more. Two months ago, however, representatives of Google and Yahoo each said publicly that click fraud is indeed a major peril, but they also believe that internal controls and higher vigilance in dealing with advertisers would keep the problem from getting bigger.
Google, in fact, claims to have seen it coming. Its chief financial officer, George Reyes, addressed a December investment conference and said click fraud stood to become the biggest threat to the Internet economy. "I think something has to be done about this really, really quickly,” he was quoted as saying, “because I think, potentially, it threatens our business model."
The lawsuit is likely to be watched very closely by search engines and other Internet companies. "It was only a matter of time before someone took action,” said SearchEngineWatch.com associate editor Chris Sherman. “From what we hear from advertisers, click fraud is very real, though I suspect not as big of a problem as some reports assert.”
Sherman also suggested the suit might prove a wake-up call for search engines to be more forthcoming with details of how their pay-per-click programs and revenue generation are reported.
"There's a possibility that this case may gain class action status, but it's going to be a challenge,” he continued. “Google, Overture, and FindWhat all say that they have extensive anti-fraud measures in place and work with advertisers who suspect foul play. If nothing else, the suit may force more detail and transparency in the reporting the paid search providers offer to advertisers.”
