Google click-fraud settlement debated

An Arkansas judge is hearing arguments for and against thesettlement of a click-fraud lawsuit that critics say lets GoogleInc. off the hook too easily.

In April, Judge Joe Griffin, of Miller County Circuit Court,gave preliminary approval to the proposed settlement of anationwide class-action lawsuit filed by lead plaintiff Lane’sGifts and Collectibles LLC against Google over the thorny problemof click fraud.

The problem occurs when someone clicks on a pay-per-click adwith a malicious intent. For example, a company official may clickon competitors’ ads to increase their ad spending, or a publishermay click on his Web site’s ads to increase his commissions.

In all cases, advertisers end up paying for clicks that don’tgenerate any business leads. Estimates about click-fraud incidencevary, with some putting it as high as 20 percent of all clicks.

On Monday and Tuesday of this week, Judge Griffin is holding ahearing about the settlement agreement to later decide whether ornot to give it final approval.

Lane’s Gifts, whose February 2005 lawsuit includes otherInternet companies like Yahoo Inc. and AOL LLC, agreed to settlewith Google for US$90 million. A third of that amount would go topay attorneys’ fees and the rest as credits to affectedadvertisers.

The class includes buyers of Google online ads between Jan. 1,2002, and the date when the agreement becomes final. Advertiserswill receive credit for click-fraud instances they can certify.

In the settlement, Google denies the plaintiffs’ claims anddoesn’t admit any wrongdoing or legal liability

However, critics say that the settlement amount is too small andthat the agreement terms are too favorable to Google, whose revenuecomes almost entirely from pay-per-click ads.

“This is, in our opinion, the most outrageous class settlementthat we’ve seen,” said Shawn Khorrami, an attorney based in VanNuys, California, who represents advertisers in click-fraudlawsuits.

One of Khorrami’s clients is Joseph Kinney, who is asking thissame Arkansas court to have Lane’s Gifts declared as not adequatelyrepresenting the nationwide class of plaintiffs. In his lawsuitagainst Google and Lane’s Gifts, Kinney also seeks a temporary andpermanent injunction blocking their settlement. Kinney also asksthe court to stay the Lane’s Gifts class-action lawsuit until adecision is rendered in his case.

In a court filing Friday, Google urged Judge Griffin to approvethe settlement, saying that 51 members of the affected class havelodged objections, an objection rate which is “just a tiny fractionof a percent.” Google described criticisms of the settlement termsas “egregious mischaracterizations.”

As part of the settlement, Google commissioned a New YorkUniversity computer science expert to conduct an independentexamination of its click-fraud detection methods. In the 47-pagereport, the expert, Alexander Tuzhilin concluded that Google ismaking a “reasonable” effort to fight click fraud.