Yahoo Hit With $1 Million Click Fraud Lawsuit

An Internet retailer that used a pay-per-click advertising service operated by Yahoo is suing the Internet giant for more than $1 million, claiming it was overcharged by thousands of dollars as a result of click fraud that Yahoo did little to prevent.

Bigreds.com, which sells collectibles online, said it paid Yahoo's Search Marketing unit, formerly known as Overture Services, more than $900,000 between 2002 and 2006. The fees were based on the number of clicks that Bigreds ads received on sites affiliated with Yahoo and Overture.

Bigreds claims that many of the clicks were not from legitimate buyers but from affiliate Web site operators who received commissions from Overture and Yahoo based on the number of clicks their sites generated for advertisers.

"These clicks were not actual traffic, but were fraudulent clicks," Bigreds claims in court papers filed earlier this month in U.S. District Court in New York. "Affiliates of Overture used software programs, employed people, and/or directed people other than actual customers to click on plaintiffs links from keyword search results," the complaint states.

Yahoo acquired Overture, which launched in 1998 as GoTo.com, in 2003.

Bigreds claims Yahoo in 2006 acknowledged the bad-click problem, but offered a refund of only $17,000. Bigreds also alleges that Yahoo's Overture unit had technology and information at its disposal that it could have used to prevent click fraud but did not take steps to do so.

"Overture was able to tell what was bad, who conducted the bad click, where it came from, what keyword was involved and generally had superior technology and access to records in its dominion that enabled Overture to determine what persons or entities or affiliates were involved," the suit claims.

Bigreds is seeking more than $1 million in damages and penalties. Yahoo has yet to file a formal response to the allegations.

Click fraud is one of the multi-billion dollar search marketing industry's dark secrets. Virtually all major players, including Yahoo, Microsoft and Google, have been forced to acknowledge the problem. Critics argue that search engines have little incentive to police the practice because much of their revenue is generated by ad clicks.

Yahoo in 2005 paid $4.5 million to settle a click fraud class action lawsuit. Google paid $90 million to settle a similar suit in 2006.