Taking The Search Engines To Court

Under pressure from advertisers, Google Inc. (GOOG ) and Yahoo! Inc. (YHOO ) are adjusting the way they deal with click fraud. Several lawsuits filed on behalf of hundreds of advertisers have helped fuel the modest changes.

In June, Yahoo agreed to settle a class action filed in federal court in Los Angeles on behalf of advertisers alleging they had been billed for fake clicks. Without admitting wrongdoing, Yahoo said it would grant refunds for bad clicks since January, 2004, that advertisers bring to its attention. The potential cost to Yahoo isn't clear. The company also agreed to appoint an in-house advocate to represent advertisers. The search engine said it would periodically invite marketers to inspect its now-secret fraud-detection systems. Separate from the settlement, Yahoo says that next year it will give marketers more control over where their ads appear.

Google reached its own settlement with unhappy advertisers in July in state court in Texarkana, Ark., where a judge approved a pact valued at $90 million. The agreement provides $30 million in cash for lawyers but only advertising credits for class members. Dissatisfied, a group of advertisers is seeking to challenge the settlement in appellate court. "The rot is so pervasive," says Clarence E. Briggs III, a leader of the breakaway group. Briggs, a former Army ranger, says his company, Advanced Internet Technologies in Fayetteville, N.C., has detected $90,000 of bad clicks on its Google ads.

Google, which denied any liability, has since announced it will pull back its cloak of secrecy and show individual advertisers the proportion of their clicks it has deemed invalid and for which they weren't billed.

By Ben Elgin and Brian Grow

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