• by Wendy Davis  @wendyndavis, October 13, 2009

Yahoo has agreed to pay some search marketers refunds of $20 to settle a class-action lawsuit alleging that it served search ads on typosquatting sites, parked domains and other potentially low-quality locales.

If the deal goes through, search marketers who advertised with the company at any time since 2000, and who are no longer in business, would be eligible for the refunds. The agreement calls also would give the plaintiffs' lawyers $4.17 million in attorneys' fees and $100,000 in expenses.

Yahoo has also promised to give search advertisers more control over where their ads appear, including the ability to direct whether ads appear on Yahoo-owned sites, such as Yahoo's search engine, or partner sites where the search ads are powered by Yahoo, such as WebMD.com. Marketers can also choose to have ads appear on both Yahoo-owned sites and partner sites.

Also, Yahoo will give marketers more information about where their ads are displayed, and will have a submission form that advertisers can use to report concerns about Yahoo's partners.

Yahoo denied wrongdoing in the case. "Yahoo entered a settlement to avoid costly and disruptive litigation, while at the same time, agreeing to provide additional benefits for its pay per click advertisers," the company said in a statement.

The deal resolves a lawsuit filed in 2006 alleging that Yahoo placed search ads "in a variety of Internet locations without any bona fide content, including spyware pop-up ads, typosquatting sites and other Internet back alleys."

The marketers said in their court papers that they "never agreed or wanted to be associated with" such "spyware" and typosquatting sites. The complaint defines spyware as unwanted software that serves pop-up ads. Typosquatting sites have URLs that incorporate misspellings of brand names.

U.S. District Court Judge Christina Snyder in the central district of California has already given the deal preliminary approval. A final hearing on the settlement is slated for Jan. 11.

Google is also facing a potential class-action lawsuit alleging that the company displayed search ads on low-quality sites, including sites that people reach after they misspell URLs. That case is pending in federal district court in the northern district of California.