Microsoft Sues Over Online Advertising `Click Fraud'

Microsoft Corp. filed two lawsuits to combat what it says is a previously unknown form of pay-per- click fraud on its adCenter network that has cost advertisers hundreds of thousands of dollars.

The company alleged that RedOrbit Inc., a Texas operator of a website about science-related topics, its president and unidentified defendants have used technical measures to make invalid ad clicks appear to have originated from legitimate sources, according to a Microsoft statement.

With click fraud, a company inflates the number of times an ad is clicked on, often boosting advertising costs for a competitor. In some cases, a website operator uses the technique to increase its own revenue. Microsoft said RedOrbit’s actions represent “click laundering,” a form of the practice designed to evade fraud detection systems.

“These are indications of the increasing sophistication” of click fraud, said Jim Jansen, an associate professor of information sciences at Penn State in University Park, Pennsylvania. “It highlights that the ad platforms cannot get complacent.”

In the past, advertisers have sued companies, such as Google Inc., that make money based on the number of times Web users interact with online advertisements. Google, the most-used Internet search engine, agreed in 2006 to pay $90 million to settle a lawsuit with companies that said they paid for clicks on ads that had no chance of generating sales.

‘Best Defense’

Microsoft’s legal moves suggest Internet companies are taking a more proactive role in cracking down on click fraud, said Laurence Pulgram, a lawyer at Fenwick & West in San Francisco.

“This is a case of the search engine deciding the best defense is a good offense, so the advertisers won’t be blaming them,” Pulgram said.

Microsoft said investigators uncovered the fraud following “dramatic and irregular growth in click traffic” on two sites within its adCenter network.

RedOrbit.com click traffic increased from 75 clicks a day to 10,000 clicks over a three-month period, according to one of two complaints filed in federal court in Seattle by the Redmond, Washington-based company, the world’s largest software maker.

“It is RedOrbit’s policy not to comment on pending litigation,” said Eric Ralls, founder of RedOrbit, listed as the defendant in one of the lawsuits. “However, we do not, nor have we ever, engaged, assisted in, or condoned click fraud. We are disappointed that Microsoft has made these completely baseless allegations, and intend to defend against them vigorously.”

Mask the Masking?

Richard Boscovich, a senior attorney with Microsoft, says Ralls figured out how to trick adCenter into making clicks that weren’t valid look as though they had come from a legitimate site.

“We found that he’d done something that was thought to be technically unfeasible,” Boscovich said. While many websites have used methods to mask the true source of traffic, “he was able to mask the fact that he was masking.”

Google said it has taken steps to root out click fraud, including in cases where the traffic is automated.

“We design our systems to catch bot-related attacks,” said Deanna Yick, a spokeswoman for Mountain View, California- based Google. “Because a significant amount of malicious traffic is automated, advertisers are protected from these kinds of attacks.”

The cases are Microsoft v. Eric Ralls, 10-818, and Microsoft v. John Does, 10-820, U.S. District Court, Western District of Washington (Seattle).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net. Peter Burrows in San Francisco at pburrows@bloomberg.net.

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