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Google Condemned For Click-Fraud Settlement

The settlement won't adequately compensate harmed advertisers or penalize Google, says an attorney who has a related case pending against the company.

An attorney representing plaintiffs in a federal click-fraud class action suit pending against Google in California claims the $90 million settlement Google reached last month in a related case filed in Arkansas fails to penalize Google or fairly compensate advertisers victimized by click fraud.

The most that aggrieved advertisers can expect from settling with Google is about a half a cent for every dollar lost to click fraud, according to Brian S. Kabateck, a partner in Los Angeles law firm Kabateck Brown Kellner LLP.

Kabateck is representing disaffected Google Adwords customers in the California click-fraud case, Advanced Internet Technologies (AIT) v. Google.

In March, Google said that it had reached a settlement in Lane's Gifts and Collectibles LLC v. Yahoo! Inc., which was filed in Arkansas in February 2005. The plaintiffs, small companies that paid for search engine ads, accused a number of search engines including Google of breach of contract, unjust enrichment, and civil conspiracy arising from click fraud. The case is still pending against the other defendants including Yahoo.

"We stand firmly by our proprietary click protection systems and look forward to vigorously defending our position on this matter," Yahoo said in a statement.

A hearing to determine whether Kabateck's California case would have qualified for nationwide class action had been scheduled for May in the U.S. District Court for the Northern District of California, but in early April Google won a stay in the AIT lawsuit. The stay delays Kabateck’s case until the Arkansas case is resolved and possibly renders it moot.

"Google apparently doesn't see cheating its customers out of billions of dollars as doing evil," Kabateck said in a statement issued Wednesday. Google's detractors frequently accuse the company of being evil to highlight alleged failures to live up to its informal corporate motto, "Don't be evil."

Google did not respond to a request for comment. Google has until May 20th to notify advertisers in the Arkansas case of the settlement. Once notified, advertisers have 30 days to opt-out. The settlement is slated for final judicial approval in July.

At the time the settlement was announced, John Battelle, author of The Search and noted Google observer, said in his blog, "This settlement is a major victory for Google. Was it good for advertisers? Not sure. But I think the folks at Google are pleased as punch with the deal."

At a panel discussion on click fraud at the Ad:Tech Conference in San Francisco on Thursday, Jessie Stricchiola, president of search engine marketing firm Alchemist Media, declined to comment on the fairness of the settlement Google reached in the Arkansas litigation, citing her involvement in the case.

But she did have a lot to say about click fraud in general.

Stricchiola began the discussion by pointing out the mixed signals the industry has been sending about click fraud. She cited conflicting statements by Google executives to prove her point. Google CFO George Reyes has called click fraud "the biggest threat" to the Internet economy. Google CEO Eric Schmidt has called click fraud "immaterial." The truth, she and others on the panel suggested, lies somewhere in between.

Click fraud occurs when someone, directly or using click-automation software, clicks on an online ad for a purpose other than receiving information about advertised product or service. That's an inherently difficult thing to define given that human intentions are not machine readable.

Google refers to click fraud using the decidedly less pejorative term "invalid clicks." "Invalid clicks are clicks generated by prohibited methods," the company explains on its Web site. "Examples of invalid clicks may include repeated manual clicking or the use of robots, automated clicking tools, or other deceptive software. Invalid clicks are sometimes intended to artificially and/or maliciously drive up an advertiser's clicks and or a publisher's earnings."

In March, Nicole Wong, associate general counsel for Google, addressed the issue of click fraud when disclosing the proposed settlement in the Google blog. "We have said for some time that we believe we manage the problem of invalid clicks very well," she wrote. "We have a large team of expert engineers and analysts devoted to it. By far, most invalid clicks are caught by our automatic filters and discarded *before* they reach an advertiser’s bill. And for the clicks that are not caught in advance, advertisers can notify Google and ask for reimbursement."

Advertisers can ask, but Google alone has the contractual right to determine which clicks are invalid. As noted during the Ad:Tech panel, advertisers in other media, such as television, receive audited, notarized reports detailing the delivery of the ads for which they've paid. Search advertisers currently have no such option. They have to take the word of the search engine.

The matter is further complicated by differing contractual terms of payment between advertisers and search engines and between search engines and publishers that display search engine ads. As the panelists at the Ad:Tech discussion noted, advertisers agree to pay Google for "actual" clicks, whereas Google agrees to pay publishers for "valid clicks."

It's a discrepancy that appears to benefit search engines. "Are search engines collecting from advertisers and not paying out to affiliates?" asked panelist Lori Weiman, director of KeywordMax, a search marketing company. "We don't know."

Simply put, the click fraud problem can’t be dealt with effectively because there's not enough transparency on the part of search engines. Google exhibits the same degree of openness about its internal data as the CIA, albeit with fewer leaks.

The Click Fraud Network, an industry group set up to monitor the problem, puts the click fraud rate at about 14%, but panelist Vincent Granville, CTO of click auditing company Authenticlick, said his clients are seeing click fraud rates around 30%.

But there's no single number that tells the story because click fraud has a lot of variables, not all of which apply to all advertisers. For example, high-value keywords tend to see more fraudulent clicks than low-value ones. That means the percentage of fraudulent clicks does not necessarily equal the percentage of a marketing budget lost. A small percentage of invalid clicks on expensive keywords can add up quickly.

Until search advertising sees more regulation, advertisers have to fight to recover marketing dollars diverted by fraud. As the panelists noted in a bit of self-promotion, there are a growing number of click auditing firms available to help.

Gripes raised by the panelists at Ad:Tech echo the issues Kabateck has with the settlement: Google isn't required to change the way it does business to become more accountable; Google has earned over $15 billion in advertising income in the past four years, making it potentially liable for at least $1.5 billion if a 10% click fraud rate is assumed; the $90 million set aside is really only $30 million in cash for attorneys, the balance taking the form of credits for victimized advertisers; and Google gets to determine whether clicks are fraudulent or not.

Kabateck intends to file appeals challenging the settlement reached in the Arkansas lawsuit both in federal court and in Arkansas state court. He warns, "If Google customers do not opt out, they will be forced to abide by the settlement."

A cynic might be tempted to read Kabateck's objections as nothing more than rainmaking. Advertisers that accept the settlement will not be able to participate in the claim brought by Kabateck and his clients, who have the option to pursue their claims individually if the court decides they cannot pursue a class action claim.

Eric Goldman, assistant professor at Marquette University Law School in Milwaukee, Wisconsin and a frequent blogger about online legal issues, explains that when a company faces multiple class action suits for the same claim -- click fraud in this instance -- it can effectively play the competing plaintiffs off against each other. If the defendant reaches a settlement with one plaintiff, the court is likely to consider all related claims resolved. In order to get paid, competing groups find themselves in a reverse auction, fighting to offer the defendant the lowest acceptable settlement.

"What I think the legal system does do is it puts an opportunity out there for unscrupulous lawyers to become co-opted by a company such Google, which looks at this as sort of a reverse auction," says Kabatek, who argues that the proper venue for this dispute is Santa Clara County, California, as stipulated by the contract Google offers its advertisers. "We have a case that's pending there. It probably has a value of a billion dollars or more. And yet the legal system allows Google to go to some lawyers that have filed in Arkansas, for God's sake, and they work a sweetheart deal with them."

On that point at least, Goldman concurs. "I absolutely think Google got a huge deal for $90 million," he says. "There are a lot of unhappy advertisers out there and that's a miniscule portion of the revenue they earned."

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