Staff Writer, CNET News.com
Google filed a lawsuit against an Internet operation that it claims systematically clicked on text ads to defraud its advertising network.
The case, filed Nov. 15 in the Superior Court of Santa Clara County in California, is among the first civil lawsuits to relate to click fraud. The lawsuit charges that Texas-based Auctions Expert International signed up to display Google's targeted text advertising on its Web site, and then fraudulently clicked on the ads to profit from its pay-per-click system.
"Because advertisers pay Google for each click on their advertisements, Google strives to ensure that each click is generated by a user legitimately interested in accessing the site being advertised," according to the complaint.
"Defendants...flagrantly abused (Google's service) by artificially and/or fraudulently generating ad clicks," the filing says. "These clicks were worthless to advertisers, but generated significant and unjust revenue for defendants."
Mountain View, Calif.-based Google did not say how much money was lost, but the company is seeking compensatory and punitive damages to be determined at trial.
As old as Internet advertising itself, click fraud is the practice of inflating traffic to advertisements or Web sites for profit. It has proliferated as Google, Overture Services and others have built multibillion-dollar, pay-per-click ad services that pair sponsored listings with related search results. With each click of a sponsored text link, they collect fees from advertisers, and then often share that revenue with publishing partners that display those ads.
The fraud is perpetrated in both automated and human ways. The most common method is the use of online robots, or "bots," programmed to click on advertisers' links that are displayed on Web sites or listed in search queries. A growing alternative employs low-cost workers who are hired in China, India and other countries to click on text links and other ads. A third form of fraud takes place when employees of companies click on rivals' ads to deplete their marketing budgets and skew search results.
According to Google's complaint, Auctions Expert erected its Web site and signed up for its Adsense programs with the sole intention of generating false clicks and collecting advertiser fees.
Click fraud is an elephant in the room of the search-advertising market, the fastest-growing sector of online advertising. While no one is certain of how much money is generated fraudulently, some executives in the industry estimate losses account for 5 percent to 20 percent of total sales. Some suspect the problem is growing, too, as Google, Overture and others syndicate their ads to small or international publishers that can be hard to police.
Unlike advertising in traditional media such as billboards and print publications, "cost per click" Internet ads displayed with specific keyword searches have been promoted as a definitive way for companies to gauge their exposure to potential customers. As a result, U.S. sales from advertiser-paid search results are expected to grow 25 percent this year to $3.2 billion, up from $2.5 billion in 2003, according to research firm eMarketer. From 2002 to 2003, the market rose by 175 percent.
Google spokesman Steve Langdon confirmed the lawsuit and said the company is vigilant in protecting its advertisers and the integrity of its programs.
"We have sophisticated technology that detects and eliminates fraud," Langdon said. "This lawsuit against Auctions Expert demonstrates the success of our antifraud system and that we will take legal action when appropriate."
Still, at least one marketing executive said the lawsuit is proof that Google's fraud detection technology is not as foolproof as it would like advertisers to believe.
"We know Google doesn't need to seek funds," said Jessie Stricchiola, president of Alchemist Media, a search-engine marketing firm based in Los Angeles.
"This is a politically strategic move in the industry to show that Google's protecting its advertisers. But that could be a distraction from the glaring truth that its high-end technology doesn't protect advertisers as much as it should," Stricchiola said.
Earlier this year, Google's service was at the center of a criminal case related to click fraud. A California man created a software program that he claimed could let spammers bilk Google out of millions of dollars in fraudulent clicks. Authorities said he was arrested while trying to blackmail Google for $150,000 to hand over the program. He was indicted by a California jury last June.
The current suit names Auctions Expert International and its owners Sergio Morfin and Alexei Leonov as perpetrators of click fraud and of breach of contract with Google Adsense Online's terms of service. However, Google said in the suit that it does not know the true identities of the defendants. It said it will amend the suit once their identities are known.
Auctions Expert's Web site was inaccessible Monday.
David Kramer, a partner at Wilson Sonsini Goodrich & Rosati who represents Google, said the suit should be a warning shot to other rogue operators.
"It sends a message to people participating in Google's advertising network that just because it's online, it doesn't make it OK to commit fraud," Kramer said.