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Michael H. Sproule, a partner with the New York law firm of Akabas & Sproule, focuses his practice on intellectual property (particularly licensing, trademark and copyright practice) and corporate law. His experience includes work with both traditional and new economy clients in fields such as technology, the Internet, media and entertainment. A software programmer himself, Mike is interested in all aspects of technology and its impact on law and our society.

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What to Do About Click-Fraud?

Written on
Dec 1, 2005 
Author
Michael H. Sproule  |
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What to Do About Click-Fraud?

A number of Internet search engines, including all the big ones, have recently been named defendants in class action suits, now pending in California and Arkansas, alleging that the search companies are profiting from “click-fraud.” With thousands of plaintiffs potentially involved in these suits, the search engines could now easily be facing the prospect of paying out huge damages.

Click-fraud, as you know, is the fraudulent practice of clicking on Internet advertising links for the purposes only of driving up advertising agency commissions and/or advertiser costs. Because much Internet advertising is paid for on a “per click” basis, more clicks mean more money going into someone’s pocket. But fraudulent clicks drive no sales and only harm advertisers.

All the major search engines insist that they do their best to prevent click-fraud, analyzing clicks and looking for patterns that could reveal fraud. However, the recent suits allege that the engines do an inadequate job weeding out fraudulent clicks. More importantly, they allege that the search engines are intentionally doing a bad job: because a search engine earns revenue from advertisers on every click, the suits suggest that the search engines have a disincentive to discover fraud and, in fact, intentionally profit from it.

It may sound like a compelling argument but there may be a fatal weakness in the complaint. In order to win, the plaintiffs must prove that the search engines actually intend to profit from fraud. However, the plaintiffs’ allegations that the search engines view click-fraud as a profit opportunity may not hold up under scrutiny. The search engines know that if click-fraud ever reaches a level that advertisers en masse lose confidence in search engine ads, the losses they will suffer from lost advertising will erase any profits they could ever make from fraudulent clicks. Contrary to plaintiffs’ claims, search engines not only do have an incentive to prevent fraud, but that incentive is central to their very business.

Click-fraud could kill advertisement support search. The search engines cannot afford to let that happen.

How, then, to deal with click-fraud? Rest assured, the search engines will continue to use the technical means at their disposal to root out click-fraud. They will ensure it has minimal impact on their advertisers by continuing to refund and credit advertisers for bogus clicks. Still, it is true that, at present, the opportunity costs of engaging in click-fraud remain low: no one pursues the perpetrators of the fraud. When they are rooted out and blocked at one domain or IP address, they simply shift to another and continue their fraudulent acts.

Herein lies the real solution to the problem: click-fraud will continue to grow as a practice until the actual perpetrators of the fraud are forced to suffer consequences for their acts. Lawsuits against the search engines are misdirected. The real profiteers are the advertising agencies and the competitors intent on driving up an advertiser’s costs by engaging in or contracting for click-fraud. Only legal action against the actual scam artists can ever have a real impact on click-fraud. Perhaps we should be turning our attention in that direction instead.





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