• by Wendy Davis  @wendyndavis, May 4, 2006

A New Jersey search marketer, Crafts by Veronica, has sued Yahoo for "syndication fraud," based on allegations that Yahoo and its affiliates were responsible for distributing pay-per-click links that appear in pop-ups served to consumers via so-called spyware programs.

In the case, filed in federal court in New Jersey, Crafts by Veronica charges that Yahoo (and the company's distributors) broke its search advertising contract by placing pay-per-click links in pages that were served to consumers who had downloaded programs that served pop-up ads. "In spite of defendants' promise and duty not to place ads in pernicious spyware programs, defendants have done just that, and have charged their advertising customers for every click made on spyware pop-up ads."

A Yahoo spokesperson declined to comment on the lawsuit, but said the company plans "to vigorously defend our position."

The lawsuit's expansive definition of "spyware" appears to include programs that are also considered "adware." The lawsuit alleges: "The term 'spyware' refers to a broad class of unwanted software programs installed on users' computers, either without their consent or without their informed consent, that take actions adverse to the users' interests such as, for example, causing unwanted and annoying pop up ads, transmitting personal information about the user, and slowing the user's computer."

Crafts by Veronica, which is seeking class-action status, also charges that Yahoo and its affiliates engaged in "typosquatting," or purchasing domain names similar to trademarked terms. Yahoo then allegedly served pay-per-click ads to consumers who mistyped the name of the site they were looking for.

Harvard graduate student and lawyer Ben Edelman is named on the complaint as one of the attorneys representing Crafts by Veronica. Edelman, a consultant in spyware/adware cases, has previously criticized Yahoo for allowing its search ads to end up on pages served by adware companies.

Several weeks ago, court documents filed in a lawsuit brought by New York State Attorney General Eliot Spitzer revealed that Yahoo had paid adware company Direct Revenue around $200,000 a month for at least three months last year for distributing pay-per-click ads.