Google settles click fraud lawsuit for $90 million

Pending court approval, Google has settled a lawsuit over allegations of click fraud filed against it, distribution partner American Online Inc., Yahoo Inc. and other search engines in February 2005 by an Arkansas-based online retailer and Caulfield Investigations, a private investigation firm, for $90 million. The suit alleges that the engines have billed online advertisers for clicks that were fraudulent, but did not reimbursement them for the fraudulent clicks.

Google’s policy has been to allow advertisers to apply for reimbursement for clicks which they believe are valid that have occurred within the pervious 60 days. Under the settlement, advertisers can apply to Google for reimbursement for what they believe to be fraudulent clicks no matter when they occurred.

Eligible invalid clicks can be reimbursed in credits for new advertising on Google. Under the agreement, the value of the credits, plus attorney’s fees, will not exceed $90 million. According to Google associate general counsel Nicole Wong, posting in Google’s on-site blog, the agreement covers all advertisers who claim to have been charged but not reimbursed for invalid clicks dating from 2002, when Google launched its PPC ad program, through the date approved by the court.

Attorney’s fees, still to be determined, will be charged as an expense, probably in the first quarter, and the advertising credits will be recorded as a reduction in Google’s revenue in the quarters in which they are redeemed, according to Wong. The settlement, if approved by the court, would also cover AOL and Ask.com, also named in the suit.

Google has reiterated that it believes it managed the problem of invalid clicks “very well.” Wong noted that Google has a large team of engineers and analysts devoted to the issue, automatic filters that find and discard most invalid clicks before advertisers are charged, and an ongoing policy of investigating and reimbursing invalid clicks. “We believe this settlement is further proof of our willingness to work together with advertisers to reimburse invalid clicks,” Wong noted.

Mustering the right data to demonstrate click fraud goes a long way toward substantiating a marketer`s claim of click fraud against an engine, according to Danielle Leitch, executive vice president of client strategy at search engine company MoreVisibility.com and a frequent industry speaker on the topic of click fraud. Leitch, who has previously obtained refunds on fraudulent clicks from both Google and Yahoo on behalf of clients, told Internet Retailer in an earlier interview that she has used what she says are red flags in log files and analytic data indicating the possibility of click fraud to make a case to the engines.

As a start, it’s critical for marketers to first benchmark data and trends so as to be able to spot what falls outside of established patterns. With benchmarks in place, the signals of potentially invalid traffic include outliers—for example, repetitive clicks in rapid succession from the same IP address using the same referring string. Other red flags include identification of the referring domain being stripped out or replaced with Xes in the server log. Another indicator of potential fraud is unusually high click activity on a particular keyword, coupled with low conversions, on the same day. Leitch observes that fraud typically occurs on one keyword rather than across a whole campaign.

Leitch notes that a bad sales day in pay-per-click campaigns has many possible causes other than click fraud, and that there are legitimate reasons why clicks can escalate very quickly without producing sales. For that reason, she adds, it behooves marketers seeking to identify and substantiate click fraud to dig into log files as well as look at analytic data. In some cases, she points out, fraudulent clicks don’t even hit a page long enough for the analytics code to load up and capture them. “Taking a step further back, into the server log has, in our case, given enough information to warrant credit back,” she says.