July 31, 2006

A state judge in Arkansas gave his final approval to a click fraud settlement that Google has reached in a closely watched class-action lawsuit.

According to the settlement, and under terms of its conditions, Google will provide up to $60 million in credit to affected advertisers dating back to four years ago.

Reportedly, another $30 million from Google's settlement will go to pay attorneys' fees.

The lawsuit was among the most highly profiled of the litigation wave against Google and other top search engines, underlying the growing problem of click fraud.

Broadly defined, click fraud takes advantage of how Google and other search engines offer advertisements on specific Web sites.

Each engine charges advertisers a fee, ranging from pennies to a few dollars, every time one of their ads gets a click. Click fraud occurs when an Internet advertisement is clicked on in bad faith, either by someone looking for financial gain, or to force the company placing the ad to pay additional fees.

The scope of the problem is subject to much debate.

Some advertisers think click fraud is extensive, saying that as much as 30 percent or more of all clicks are invalid and forcing advertisers to pay Google and others more than $1.3 billion extra each year.

But search engines and other entities distributing Internet ads say the effect is vastly exxagerated. According to them, the percentage of fraudulent clicks is only in the low single digits.

By approving the settlement Thursday, Miller County Judge Joe Griffin effectively ends Google's participation in the class-action lawsuit, which was filed by two Arkansas businesses and Internet advertisers Lane's Gifts and Collectibles and Caulfield Investigations in February of last year.

However, it won't necessarily end the case, which has ballooned in scope into a class action and represents tens of thousands of Google advertisers. The settlement's being contested in another lawsuit filed in California that's still pending.

The $90 million agreement that Griffin ruled on affects Google only. Yahoo and other defendants in the case have chosen not to settle.

The deal was also hotly contested. So far, some 51 people objected to taking part in it, meaning they can still pursue separate legal actions against Google.

Some consumer advocates say Google's getting off too easily given the apparent scope of the problem. But Google has defended the settlement terms in the past.

In his decision, Miller wrote that "the settlement is fair, reasonable and adequate for all members of the class."

For its part, Mountain View, Calif.-based Google was predictably pleased.

"We're pleased Judge Griffin affirmed the settlement as appropriate and fair to advertisers," Google General Counsel Nicole Wong said in an emailed statement. "We look forward to continuing to manage invalid clicks effectively and provide our advertisers with an outstanding return on investment."

An aide for the lead attorney representing Lane's confirmed the settlement had been approved, but didn't comment further.

Source: Market Watch