Jacob Rooksby, a summer associate in the firm's Winston-Salem office, wrote this article with supervision provided by Mr. Springer, a member of the firm's Intellectual Property Practice Group.
You may want to think twice before your company spends thousands on Internet advertising for ads on Google or other popular search engines. The search engine business model of charging for click-through advertisements is threatened by widespread fraud and by litigation aimed to address the fraud. Search engines may not be properly reflecting the value – hence the cost – of these click-through advertisements.
With Google’s “AdWords” keyword advertising program, companies can compete to have their Web link appear in the margin of Google search results when certain keywords—that the company chooses—are entered by Web searchers. Companies make bids for keywords that will trigger their advertisements. The highest bidder for a word or phrase generally finds its ad on top of the list off to the right of normal search results. Companies then pay fees to Google whenever a user clicks on an AdWords link that has appeared because of the user’s search term.
Advertising companies pay Google an amount based on the perceived value of a potential customer seeing their advertisement, and more money for the value of the potential customer clicking on the advertisement to visit the advertiser’s web pages. Although the price-per-click can run anywhere from $0.50 (the average) to upwards of $100, depending on how coveted the search term is, these clicks can quickly add up, especially when rival companies employ people or machines to click on these ad links, having no intention of buying or learning about a site’s products or services. This practice, known as “click fraud,” can be devastating to your company’s Internet marketing plan—and budget. Some analysts believe that as many as 20% of search engine advertising clicks are fraudulent. Even Google’s CFO, George Reyes, has called click fraud “the biggest threat to the Internet economy.”
There are, however, ways to combat this problem. Click Defense Inc., a privately held company founded in 2002 and based in Fort Collins, CO, states its mission as providing “cutting-edge technology to meet an identified need for professional Web analytics.” Click Defense specializes in providing a program that lets customers track, report, and enhance their online advertising campaigns by proactively monitoring instances of click fraud. To do this, the Click Defense program analyzes the source of clicks on its customers’ ads to find patterns that might indicate fraud. The company’s clients range from small, entrepreneurial, one-man operations, to multi-million dollar corporations whose Web sites receive millions of hits per month.
While search engines like Google do attempt to identify click fraud, in many cases they are unable to stop sophisticated spammers (and the search engines make more money due to undiscovered click fraud). The end result is that advertisers can lose lots of money each month due to this practice. So where does that leave those defrauded companies who have helped Google—which receives 99% of its total revenue through pay-per-click profits—earn $1.256 billion in revenue in the first quarter as a publicly-traded company?
Enter Click Defense once again, this time on the offensive. On June 24th, Click Defense filed a class-action suit against Google in the United States District Court for the Northern District of California, hoping to gain more than $10 million in damages on behalf of all the companies that have used Google’s AdWords program in the last five years. The lawsuit alleges that Google has been negligent in monitoring fraudulent clicks, at a loss to its advertisers and a gain to its own bottom line, and also makes claims for breach of contract, unfair enrichment, and unfair business practices. Click Defense states in its complaint, “Google 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.” In addition to money damages, the suit asks that Google be required to disclose “the true extent of click fraud” and to return any money to advertisers that resulted from the practice. Click Defense also claims that “It is likely that the very computer programs that Google uses to track clicks for purposes of charging their advertisers fees could also be used to screen for fraudulent clicks.” This federal class-action suit is similar to one filed in Arkansas state court in February against Yahoo, Time Warner (AOL), Ask Jeeves, Lycos, LookSmart, and FindWhat search engines, in addition to Google.
Although Google has provided a small number of rebates to companies who have complained of being victims of click fraud, Google is not conceding anything. In response to the most recent suit by Click Defense, Google spokesman Mike Mayzel said, “We believe this suit is without merit, and we will defend ourselves against it vigorously.” Before your company begins a marketing campaign with Google (or another search engine) using pay-per-click advertising, you might want to wait to see what light these lawsuits shed on the pervasiveness of click fraud.
http://www.wcsr.com/default.asp?id=118&objId=102
