• by Wendy Davis  @wendyndavis, October 14, 2010

Google has agreed to pay $3.5 million to settle a class-action lawsuit alleging that it used a misleading registration form that tricked marketers into paying for ads that ran on its publisher network.

The proposed settlement affects marketers that advertised on Google between October of 2007 and July of 2009 and didn't realize that they would be opted-in to Google's AdSense network by default. During that time, Google displayed ads on its publisher network if marketers registered for AdWords without filling in the field marked "CPC content bid."

The agreement, quietly filed with the court earlier this month, calls for those advertisers to receive refunds, says the lead plaintiffs' lawyer Brian Kabateck. If any money is left over, it will go to charity.

"All the money will be spent," Kabateck says. "It's real money, not a coupon."

He adds that most of the advertisers that were affected were small businesses that didn't use search marketing firms. "This wasn't a problem that plagued the really sophisticated advertisers," he says. "Small mom-and-pop advertisers are the ones who probably got lured into this."

Google, which denied wrongdoing in the matter, said in a statement: "We're satisfied with the agreement and are glad to move forward."

In a motion seeking approval of the settlement, the marketers' lawyers acknowledge that many search advertisers who were enrolled in AdSense benefited from the program. "The value provided to the putative class members for the clicks that this action seeks to have refunded was, in many instances, equal to or greater than the amount paid for those clicks," the papers state.

The deal also provides for Kabateck's law firm, Kabateck Brown Kellner, to receive attorneys' fees of up to $1.2 million. Kabateck previously successfully sued Google and Yahoo for click fraud.

If approved by U.S. District Court Judge Ronald Whyte in San Jose, Calif., the settlement would resolve a lawsuit filed in January by retailer Largo Cargo, which alleged that Google did not adequately communicate that its pay-per-click ads would run on the AdSense network as well as the search results pages. Largo Cargo, which began advertising with Google in 2008, asserted that it intended to opt out of AdSense during the registration process by not responding to a question asking how much it would be willing to pay per click for contextual ads on sites that participate in Google's publisher network.

"Plaintiff, like any reasonable consumer, expected that leaving an input blank would indicate that it did not want to bid on content ads," the company alleged in its lawsuit.

Before Largo Cargo sued, a different search marketer, David Almeida, attempted to bring a class-action case against Google based on the same allegations. But that matter was dismissed last year after it emerged that Almeida had signed up with Google before the company began using the registration form referenced in the lawsuit.