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Google Inc. has agreed to pay up to $90 million to settle a lawsuit
alleging the online search engine leader overcharged thousands of
advertisers who paid for bogus sales referrals generated through a ruse
known as "click fraud."
The proposed settlement, announced by the company Wednesday, would
apply to all advertisers in Google's network during the past four
years. Any Web site showing improper charges dating back to 2002 will
be eligible for an account credit that could be used toward future ads
distributed by Google.
The total value of the credits available to advertisers will be
lower than $90 million because part of that amount will be used to
cover the fees of lawyers who filed the case last year in Arkansas
state court. The proposed settlement still requires final court
approval.
The lawsuit, filed by Lane's Gifts and Collectibles on behalf of all
Google advertisers, revolves around one of the most sensitive subjects
facing Google and Yahoo Inc. (Nasdaq:YHOO - news), which runs the
Internet's second largest marketing network.
Yahoo, which is also named in the suit, said Wednesday that it intends to fight the lawsuit's allegations.
Mountain View, Calif.-based Google makes virtually all of its money
from text-based advertising links that trigger commissions each time
they are clicked on. Besides enriching Google, the system has been a
boon for advertisers, whose sales have been boosted by an increased
traffic from prospective buyers.
But sometimes mischief makers and scam artists repeatedly click on
specific advertising links even though they have no intentions of
buying anything. The motives for the malicious activity known as click
fraud vary widely, but the net effect is the same: advertisers end up
paying for fruitless Web traffic.
The lawsuit alleged Google had conspired with its advertising
partners to conceal the magnitude of click fraud to avoid making
refunds.
The frequency of click fraud hasn't been quantified, causing some
stock market analysts to worry Google's profits will falter if it turns
out to be a huge problem.
Google executives have repeatedly said the level of click fraud on
its ad network is minuscule — a contention that the proposed settlement
amount seems to support.
The $90 million translates into less than 1 percent of Google's $11.2 billion in revenue during the past four years.
Google disclosed the settlement after the stock market closed. The
company's shares fell $10.57 to close at $353.88 on the Nasdaq Stock
Market, then shed another $2.11 in extended trading.
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