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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.

Thomas Claburn

April 28, 2006

4 Min Read

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."

About the Author(s)

Thomas Claburn

Editor at Large, Enterprise Mobility

Thomas Claburn has been writing about business and technology since 1996, for publications such as New Architect, PC Computing, InformationWeek, Salon, Wired, and Ziff Davis Smart Business. Before that, he worked in film and television, having earned a not particularly useful master's degree in film production. He wrote the original treatment for 3DO's Killing Time, a short story that appeared in On Spec, and the screenplay for an independent film called The Hanged Man, which he would later direct. He's the author of a science fiction novel, Reflecting Fires, and a sadly neglected blog, Lot 49. His iPhone game, Blocfall, is available through the iTunes App Store. His wife is a talented jazz singer; he does not sing, which is for the best.

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