Click Fraud Talk at SMX West

By Eric Goldman

At SMX West, I participated on a panel about recent search engine law developments with Clarke Walton, Sarah Bird and Jeffrey Rohrs as moderator. Jeff asked me to address click fraud developments, so here’s a recap of my very brief talk:

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From a legal standpoint, I think click fraud is a relatively unexciting topic. Principally, click fraud is a fairly routine contract interpretation issue–the advertising contract defines the payment mechanism, so search engine-advertiser click fraud cases simply involve the interpretation of that provision. As a result, click fraud cases don’t really break any new theoretical ground; the basic legal doctrinal are squarely covered in a first year Contracts course.

The click fraud topic has gotten even less interesting following the 2006 settlements by Google and Yahoo. Since then, I think we’ve seen a gradual but unmistakable decline in the attention and emotional energy directed towards the topic. Google and Yahoo settled up in part to put the issue behind them, and it looks like they did just that. Let’s consider the denouement from the 2006 settlements:

* Google and Yahoo paid fairly nominal amounts of cash (by their standards)

* The plaintiffs’ attorneys made off with a nice chunk of change (by their standards)

* Advertisers got almost no value from the settlements. My understanding is that the dollar value of credits requests pursuant to the settlement was trivial.

* Hundreds of advertisers opted out of the settlements, and some of those opt-outs have matured into standalone lawsuits of relatively low import (and, IMO, relatively low merit), such as the Feldman v. Google lawsuit. There are some ancillary lawsuits, such as the ongoing Miva securities litigation, that I also think are chickenscratch cases.

Looking forward, I see two main open issues about click fraud:

1) Just how bad is the click fraud problem? We still don’t know the exact rates or volume of click fraud (a topic that has sparked an irresolute war of words and statistics), and advertisers still don’t have a good way to quantify it for themselves. As a result, many advertisers are still mad about click fraud, but at the same time I don’t see any obvious suppression of the click-based advertising market either. I’m sure some advertisers have checked out due to click fraud, and other advertisers have reallocated a portion of their dollars to advertising media less susceptible to fraud, but on the whole the click-based advertising market remains robust, healthy and profitable for all involved. I think this is one of the main reasons that click fraud is receiving less attention.

Another possible reason is that perhaps advertisers are doing a better job managing click fraud despite their imperfect tools. Certainly, advertisers who can track ROI from their click-based advertising can adjust their click bids to account for any valueless clicks. For those advertisers, I recommend that they reduce their bids downward to reflect the value they actually derive. Let your competitors overpay for those clicks.

2) Will there be new class action lawsuits against Google and Yahoo? While the 2006 settlements cleaned up Yahoo and Google’s past liability for click fraud, in theory a new class of advertiser-plaintiffs has been developing since the settlement dates. In light of the sweet deal that the plaintiffs’ attorneys got in the last settlements, it seems inevitable that some entrepreneurial plaintiff-side attorneys are going to round up a new class of post-settlement advertisers.

For more on the click fraud topic, in May 2007, I gathered my blog posts on the click fraud topic into a single PDF.

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