Led by retailer Lane’s Gifts & Collectibles, the plaintiffs allege that they have been overpaying for advertising due to illegitimate hits on their links and banners and that search sites were aware of the problem but continued to overcharge them.
The suit names as defendants Google, Yahoo, Ask Jeeves, Time Warner (AOL), Walt Disney, Ask Jeeves, Daum Communications (Lycos), LookSmart and FindWhat.
Online merchants have quietly complained for some time that bogus click stats cost them tens of thousands of dollars each year, but fear of blacklisting by major search engines have prevented them from going public about the issue or pursuing compensation.
In March, CNet News ran a story about a Search Engine Strategies conference in which audience members sheepishly admitted to losing as much as $300,000 paying for thousands of clicks with almost no conversions.
“This fraud is part of doing business, because if you start suing these search engines, they'll cut off your traffic,” one audience member said.
With sponsored link fees running anywhere from 50 cents to $10 per click, analysts say the industry is ripe for fraud.
John Squire, product marketing vice president at web analytics firm Coremetrics, estimated that his company's clients, which include online merchants such as Eddie Bauer, OfficeMax and CompUSA, were spending about $10 million a year on fraudulent clicks.
“It's a billion-dollar problem,” said Tom McGovern, president of search engine Snap.com.
Click stats can be inflated in several ways, from simply clicking on the same ad or link repeatedly to using sophisticated bots to automate the clicking. A Wall Street Journal article on the subject said industry experts estimate that fraud is responsible for as much as 20 percent of all clicks.
In cases that have been successfully traced back to the source of the fraudulent activity, perpetrators are most often found to be either companies seeking to eat into a competitor’s pay-per-click ad budget or, less frequently, search engine ad affiliates hoping to boost their payout.
Either way, merchants end up paying more than they should, with little return on their investment. And now, they want search companies to be held liable for the fraudulent charges.
However, most search engines claim to have antifraud mechanisms in place and to issue refunds whenever they find evidence of artificially exaggerated click results.
None of the companies named as defendants in the suit have issued public comments, but AskJeeves stated in a public filing last month that it intends to defend the lawsuit vigorously.
Also, in a recent quarterly report, Google admitted that click fraud is a problem on the site but said it reimburses victims for lost revenues.