While Google’s AdWords program does have a process for click fraud refunds, “the protocol is changing by the week,” according to Scott Boyenger, CEO of Click Defense. “When you’re bringing in a billion dollars a quarter, you’re going to protect that nut.”

Advertising is far and away Google’s main source of revenue. The company reported revenue of $1.256 billion in the first quarter, including $462 million in traffic acquisition costs that it shares with its partners.
With Google’s service, and others like it, advertisers guarantee a certain payment for each time a user clicks on an ad. Higher payments win more prominent placement in response to a keyword search. The average cost per click is $0.50, though individual payments for some keywords top $100, according to the lawsuit.

Cottage industries of strategy and abuse have emerged around pay-per-click ads. Rival businesses that want to decimate their competitors’ ad budgets, as well as ad-hosting sites that get a cut of Google’s revenue, use software and cheap labor to ratchet up advertisers’ payments. Around 20 percent of clicks are fraudulent, according to Click Defense.

Fort Collins, Colorado-based Click Defense analyzes the sources of clicks on its customers’ ads to find patterns that might indicate fraud. It cobbles together its tracking data without the help of Google’s closely held records.

But Google knows, or should know, about instances of click fraud, charges the suit, which was filed by the Los Angeles law firm Kabateck Brown Kellner. It accused the Mountain View, California, search giant of breach of contract, negligence, unfair enrichment, and unfair business practices on behalf of all AdWords’ customers in the last five years.

Mr. Boyenger said his goal in filing the suit was to make Google open its AdWords records to third-party auditing and establish a formal process for click fraud complaints. As an AdWords advertiser, Click Defense counts itself among the plaintiffs deserving damages.

Arkansas Suit

In February, a similar class action suit was filed in Arkansas against Yahoo, Time Warner (AOL), Ask Jeeves, Disney, Lycos, LookSmart, and FindWhat, in addition to Google. The class would include all customers of all eight search engines’ advertising services.

After some confusion about whether the appropriate venue was in state or district court, the case is expected to continue in Arkansas state court.

Upon hearing of the Click Defense lawsuit, the Arkansas plaintiffs’ lawyer, Joel Fineberg, was skeptical, saying it seemed redundant. “Our case is substantially broader in that there are more parties involved,” he said. “We will be able to address many more individuals and companies.”

Kabateck Brown Kellner declined to comment on the merits of their case versus the one in Arkansas. The suit’s jurisdiction would extend throughout the United States due to the large sum sought and the residence of the plaintiffs in other states.

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