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May 3, 2006

Yahoo Named in Click Fraud Lawsuit

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The Washington Post’s Brian Kreb’s is reporting that a class action suit has officially been brought against Yahoo and a group of unnamed third-parties accusing Yahoo! Search Marketing of syndication fraud. The suit is largely based on Ben Edelman’s Y!SM Spyware story, and ironically enough, Edelman is listed as one of the attorneys behind the suit.

The suit alleges Yahoo! displayed Y!SM advertisers’ ads via several spyware and adware sites, not the ‘high-quality” sites they were promised, and then charged the advertisers the same rate. Among the listed spyware sites are Intermix and Direct Revenue – sites previously investigated for being spyware vendors.

Yahoo! is also accused of purposely placing ads on ‘parked domain’ and ‘typosquatting’ sites. These sites try to capitalize off of the misspellings of popular company names, brands or trademarks and often appear if a user mistypes the intended URL. They are bad eggs, and again, not the ‘high-quality’ sites Yahoo! promised its advertisers.

But the hits don’t end there; the suit also claims Yahoo! used its relationships with listed spyware companies to boost its revenue in times of particular hardship, or to meet projected earnings. Such an accusation paints an unsettling picture of Yahoo! purposely conspiring to deceive its customers while padding their own pockets. A picture, that whether true or not, will likely stay with potential advertisers long after a verdict has been reach in this case.

This isn’t the first (or second) time Yahoo! has been accused of enabling click fraud or syndication fraud. It will be interesting to see if Yahoo! will try and fight the lawsuit or reach a settlement like Google. My guess would be the latter. The $90 million Google settlement has received a lot of backlash recently, as data was released to suggest advertiser’s who lost $10,000 would only receive $5 in compensation. Have the parties bringing this lawsuit learned from the Google click fraud case? How much will they be asking in damages? Things are about to get very interesting for Yahoo!.

A PDF copy of the class action lawsuit against Yahoo! is available via the Washington Post site.

(Hat-Tip SEJ)

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