Click Fraud Settlement Viewed as Win-Win by Some

Google’s proposed click fraud settlement can be seen as a victory for marketers in that Google’s offering a chance for some marketers to be reimbursed for invalid clicks over the last four years they’d otherwise not be eligible for. But the bigger winner here would appear to be Google itself. For just $90 million, a fraction of Google’s nearly $1.5 billion in net income from 2005, Google will essentially rid itself of all click fraud-related issues of the past four years.

Add to that the fact most of the $90 million will be paid in advertising credits to be reinvested in its own system and the bonus of not having to endure a protracted court battle to defend its operating procedures, and Google is surely viewing at this settlement favorably, according to Eric Goldman, assistant professor at Marquette University Law School and a specialist in Internet law.

“This looks to be a very good deal for Google. It’s a way to cure a potentially very sizeable problem for a cost that’s a blip in their financial picture,” Goldman told ClickZ News. “This is a way for Google to affirmatively take care of a problem.”

Considering the difficulty the case seemed to present for the plaintiffs, a sure $90 million may be the best possible outcome for advertisers as well, Goldman said. Since “click fraud” is not an established legal concept, the plaintiffs in this case would have first had to convince the judge Google’s actions breached its contract with advertisers, and then show advertisers had sufficient grounds to warrant damages.

“It’s a game with uncertain payoffs. The plaintiffs can keep playing, and risk not getting anything, or stop now and take a sure thing,” Goldman said.

One problem with deciding if $90 million is a worthwhile settlement is the lack of clear idea of the volume of click fraud. Shuman Ghosemajumder, Google’s business product manager for trust and safety, in a post on the Inside AdWords blog said the amount of invalid clicks that make it through Google’s filters and are billed to advertisers is “very small,” though the company has consistently refused to put a number to it.

“By far, most of the invalid clicks we see are detected and discarded by our automatic filters even before they reach advertisers accounts. If an advertiser is monitoring click activity, these automatically filtered clicks may show up in an advertiser’s logs, but not in their bills. When invalid clicks are detected after an advertiser is charged, we reimburse for them. Because of our detection efforts, losses to advertisers from invalid clicks are very small,” he said.

Google’s attempts to explain its click fraud policies may be an indication the company will take a more proactive stance with advertisers on the issue. The company has come under fire recently for a perceived lack of responsiveness on the issue.

The problem, according to Jessie Stricchiola, president of SEO firm Alchemist Media and a subject-matter expert for the plaintiff on the Lane’s case, is that search engines are making a decision about what constitutes a valid click without having some of the more crucial information required to make that decision, including site visitor behavior, clickstream, and conversion data.

“Everyone in this industry agrees click fraud exists, and everybody agrees that advertisers should not be billed for it,” Stricchiola said. “At the end of the day, the question becomes ‘what constitutes a fraudulent click, and who works to determine that?’ Up until this point, it’s been the search engines making the determination without using the data on the advertiser’s side.”

Stricchiola is currently embarking on a research project with credit card fraud analysts Fair Isaac, a “rigorous study to address the scope of the problem.” Results are expected later this year.

Some search marketers, such as David Berkowitz, director of strategic planning at 360i, say click fraud has been over-hyped and is little more than a distraction for most sophisticated marketers. Much of the problem is in advertiser’s perception of the issue, and the way the search engines have handled it, he said.

“Search engines need to better educate marketers and provide greater transparency into their methods. If they say that a certain percentage of clicks are fraudulent or if they offer a refund to marketers on some clicks, the engines will best serve marketers and agencies by being more open about how they come to such conclusions,” Berkowitz said.

Although details of the settlement remain confidential until it’s approved by the judge, Goldman said in most class-action cases, the settlement would cover all members of the class. In this case it would seem to be anyone who spent money in Google’s cost-per-click advertising programs since they began.

If the judge accepts the settlement agreement, advertisers would have a certain amount of time to opt-out of the class or be bound by the terms of the settlement, meaning they couldn’t bring separate action against Google for any similar complaints during the period covered by the settlement.

The settlement would likely cover several named defendants in the case that displayed Google’s ads during the period, such as AOL, Ask.com and Lycos. It wouldn’t cover Yahoo or Miva, who would have to continue the case or reach a separate settlement. Miva declined to comment, and Yahoo issued a brief statement vowing to “vigorously defend” its position that its click protection system is effective.

There remain two related open lawsuits against Google, one a click fraud class-action suit originally filed in California by Click Defense in June 2005, which now is being led by North Carolina-based Web host and domain registrar AIT. AIT stepped in when Click Defense begged off as lead plaintiff in December. The other class-action suit, filed in August by CLRB Hanson Industries in California, alleges Google didn’t honor daily campaign spending limits set by advertisers.

This settlement wouldn’t affect the CLRB Hanson Industries case, but it could potentially affect the Click Defense/AIT case, depending on the terms of the settlement, Goldman said.

Attorneys in the AIT case said on Friday that they do not expect this settlement to effect their case. If the judge in the AIT case certifies a class in federal court at a hearing on May 14, and the settlement in the Lane’s case has not been approved by the Arkansas state court judge and the members of the class, the AIT case will not be included in the Lane’s settlement, according to Darren Kaplan, an attorney for the plaintiff in the AIT case.

“Since the announcement provided little information as to the terms and conditions of the settlement, it is impossible to fairly evaluate the proposed settlement and to determine whether it is a good result for the class,” said Brian Kabateck, another attorney for AIT. “Once we learn more, we will decide what, if anything, we are prepared to do in order to protect the interests of the Google customers we represent.”