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Online Advertising and Pay-Per-Click Fraud

Pay-per-click (“PPC”) advertising is a profitable online service that search engines, such as Google, Yahoo, or Microsoft, provide their customers. Now recently, PPC fraud has developed and caused loss of revenues for businesses and advertisers.   PPC fraud occurs when someone or a program clicks on a company’s advertisement without intending to view the website or buy anything.

Many companies have filed lawsuits against search engines, claiming that they have breached the terms and conditions of their contracts. These companies have alleged that the search engines, acting as the intermediaries, that published their online advertisements improperly charged them for fraudulent clicks. Two questions can be raised by these implications. First, how should a chargeable click be defined within the advertising contract? Second, does a search engine have any duty to protect advertisers from fraudulent clicks?

What is PPC Advertising?

PPC advertising is interactive advertising since the visitors click on displayed ads and get routed to the advertiser’s website. The advertisements are customized under specific keywords or search terms. For example, a law firm that specializes in internet or cyberspace law may use those terms in its PPC advertising. The advertisers pay the intermediaries (e.g., Google, Yahoo, Microsoft) which publish their advertisement for a previously-agreed-upon fee.

There seem to be two forms of click fraud wrongdoers: (a) competitors; and (b) affiliates. Competitors click on their competition’s online advertisements to increase charges for their competition. Affiliate click fraud is executed by a third party (i.e., affiliate) who hosts the advertisement in exchange for a portion of the click stream revenue. Thereafter, the affiliate executes fraudulent clicks in order to increase the fees and shares of revenue. This form of fraud is executed manually or by using software programs (e.g., robots).

What Can Search Engines Do Or Claim In Their Defense?

On the defensive side, search engines and intermediaries that face a lawsuit should claim, and ultimately prove, that their conduct did not violate their contract’s terms or conditions.  In addition, they should include a provision in their contracts that gives them the sole authority in determining the click count.  This way, they can enjoy a certain degree of flexibility without acting in bad faith. They should define “actual clicks” in the contract.  They should also review their own promotional or information material and strike a balance between reassuring advertisers and forming high expectations of click fraud protection.

At this time, it is difficult to implement a functional detection system in order to detect or prevent invalid clicks. Therefore, the removal of every invalid click from an advertiser’s invoice is equally difficult.  The solution may be to utilize software that can detect, document, and prevent click fraud.  There are a variety of technologies (e.g., weblog analysis software) that can help identify suspicious clicks.

At our law firm, we assist clients in legal issues related to internet, cyberspace, and pay-per-click fraud. You may contact us in order to setup a free consultation.