Yahoo Promises Refunds In Click Fraud Settlement

Yahoo this week agreed to settle a class-action click fraud lawsuit by offering cash refunds or ad credits to search marketers who have paid for clicks made by users who had no good faith intention of visiting the marketers' Web sites.

The proposed resolution varies considerably from a settlement that Google agreed to earlier this year in a similar class-action lawsuit--largely because Yahoo agreed to give advertisers the option of cash rebates for the entire amount they overpaid, while Google promised to give ad credits for a percentage of the total overpayment.

"We believe it's a fair and adequate settlement," said Atlanta attorney Darren Kaplan, one of the lawyers who negotiated the Yahoo deal. "Whether you get cash or credit is really going to depend on what your preference is, or whether you still have an active account with Yahoo."

Kaplan, a vocal critic of the settlement in the Google case, is leading the legal battle to derail that settlement. He intends to argue in court later next month that the deal shouldn't go through because--among other reasons--search marketers will receive little if any benefit from it. Google did not respond to a request for comment.

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The Yahoo case, brought in June 2005 by Delray Beach, Fla.-based CheckMate Strategic Group Inc., alleged that Yahoo didn't adequately police clicks on search ads. Los Angeles U.S. District Judge Christina Snyder gave preliminary approval to the settlement on Wednesday.

Among other terms, the Yahoo settlement also calls for the company to work with a third party to develop a definition of click fraud, as well as a comprehensive list of known "bad actors, bots and worms" that are responsible for producing the bad clicks, said John Slade, senior director of product development at Yahoo.

Click fraud generally refers to clicks made by users who don't actually have an interest in visiting the site. While some click fraud occurs when a business deliberately clicks on competitors' ads on Yahoo search sites in order to drive up competitors' marketing costs, most fraud is believed to occur on affiliate sites; on those sites, publishers share in the cost-per-click revenue, meaning that their revenue increases when visitors click on the ads.

For purposes of the rebates, the agreement defines click fraud as "clicks generated by persons that did not have a bona fide interest in viewing the content of a Yahoo ad," Kaplan said.

A retired federal judge will oversee claims by Yahoo advertisers. The settlement provides that search marketers can apply for rebates dating back to January 2004; in the Google case, they can apply for credits for false clicks dating back to 2002.

Slade added that Yahoo has historically scrutinized paid clicks for signs of fraud, and has given rebates when it has uncovered evidence of bad faith clicks.

As part of the settlement, Yahoo has agreed to appoint a full-time employee to act as a liaison between search marketers and the company on click-fraud issues, and also will host an annual panel of advertisers at its click-fraud protection center, and will consider offering advertisers analytics tools.

Yahoo also agreed to pay up to $4.95 million in attorneys' fees.

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