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Online advertising click fraud

This post concerns an unresolved US click fraud court case which raises questions such as - What are the  legal obligations to prevent click fraud in pay-per-click online or Internet advertising? There are lessons here for advertisers (ie those who place ads) as well as search engines and others who offer opportunities for pay-per-click online advertising.

Click fraud is an Internet sector term, not a legal term. It involves a human being or a robot computer program (ie bot) repeatedly clicking a hyperlinked pay-per-click advertisement. This results in inflated Internet advertising costs payable by advertisers (ie those who place and pay for the ads) who pay per click.

The brief facts in a recent US case are, Payday Advance Plus was an advertiser seeking to use pay-per-click advertising. On or about 3 January 2004 it entered into a contract to place pay-per-click Internet ads with Findwhat.com (renamed Miva, Inc in June 2005), a search engine. It was "on or about" because Payday can't find a signed contract.

A New York court ordered on 11 March 2007 that Payday may proceed with a class action claiming breach of contract against Findwhat due to click fraud. The rationale for this court decision is noteworthy.

While allowing the breach of contract claim to proceed, the court accepted a motion to dismiss all other legal grounds for the click fraud claim. Those dismissed grounds include negligence, unjust enrichment, fraudulent concealment and civil conspiracy.

The breach of contract argument of Payday survived because US District Court Judge John G. Koeltl accepted Payday's argument that there existed an implied contract law covenant of "good faith and fair dealing" in Payday's contract with Findwhat:

"Payday argues that an interpretation of the contract that would allow the defendants deliberately to generate clicks on Payday’s site from users or “bots” who plainly have no intention of making purchases should be disallowed because it would violate the implied covenant of good faith and fair dealing." [at page 11] ...

"The facts alleged in the Complaint, if taken to be true, suggest that Findwhat could have violated its implied covenant by inflating the bidding prices for search terms and by directing Advertising to generate “clicks” on Payday’s website by people or “bots” who had no purpose for visiting the site other than to generate revenues for Findwhat and Advertising. Because this tactic would allow Findwhat to increase its profits solely at its discretion and with no benefit to Payday, it is plausible that it could be found to “destroy[ ] or injur[e]” Payday’s rights under the contract. Dalton, 663 N.E.2d at 291. It is furthermore likely that a reasonable advertiser entering into such a contract would expect that, whatever the external risks of unproductive “clicks,” it would not be subjected to unbounded increases in its prices at the hands of its promisor or at its promisor’s direction." [at page 12]

Payday alleges that click fraud increased the data recorded in ClickTracker, a software developered by Findwhat's advertising "affiliate", Advertising.com, Inc. Under their "affiliate relationship" Findwhat fed its client's selected keywords to Advertising.com which in return fed back Internet traffic to Findwhat's search result listings. In this quite usual pay-per-click arrangement the Findwhat funny business alleged to have taken place (and for which Payday says Findwhat is responsible) includes:

  • use of bots (ie automated software) and individuals to commit click fraud;
  • use of bots to "spoof" different reference points on the Internet to make it appear that clicks came from different sources; and
  • secret bidding for keywords by the search engine company and Advertising.com.

It is also alleged Findwhat had little or no internal controls, policies or procedures to monitor click fraud. If Findwhat in fact lacks such items it will not help its defence against Payday's claims. Justice Koeltl comments are noteworthy:

"Findwhat has provided a small number of rebates to advertisers who have complained about being victims of click fraud, suggesting that Findwhat has recognized that click fraud exists and has some ability to ascertain which clicks constitute click fraud.

Findwhat allegedly has no internal controls, policies, or procedures to monitor whether traffic going to its paid advertisers’ sites comes from potential customers or from "bots"." [at page 7]

All bold emphasis in all the above quotes is our.

The full judgement is Payday Advance Plus, Inc. v. Findwhat.com, Inc., No. 06-cv-1923, 2007.

The case is part of a line of high profile click fraud cases involving allegations against Google and Yahoo! In July 2005, Yahoo paid an estimated $US4.95 million, all for the legal bills for the plaintiffs, to settle a class action lawsuit against it by plaintiffs alleging it did not do enough to prevent click fraud. In July 2006, Google settled a similar suit for $US90 million.


Note on photos: Click fraud often involves use of a computer mouse. The two photos on this post are of Dr. Douglas C. Engelbart's mouse and hand. With Bill English he invented the computer mouse (and many other things that inspired developments in later decades for interactive digital media).


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