Redmond, Washington — After an investigation extending for more than a year, Microsoft Corp., of Redmond, Wash., filed two click-fraud lawsuits Wednesday, in federal court in Seattle against Eric C. Ralls and the company he established, RedOrbit Inc., a Dallas science news and shopping site, plus 10 unnamed defendants that allegedly generate fake clicks on Web advertising to make money from advertisers that pay per click.
One of the suits, registered in the U.S. District Court for the Western District of Washington, accuses Eric Ralls, president and founder of Dallas science-news site RedOrbit. The software giant alleges that RedOrbit engaged in “click laundering,” a term the company coined for making bogus clicks on third-party sites look like legitimate clicks on a publisher’s site, thus inflating ad revenue.
“We can either take violent steps to stop fraud or we can look the other way and make money from it,” said Brad Smith, Microsoft’s general counsel, at a news conference Wednesday. Both the Web operators and the search engine can profit from click fraud.
Microsoft also filed a similar suit against several unnamed “John Doe” defendants who allegedly committed click laundering through HelloMetro Inc., a network of online city guides based in Louisville, Ky. The company itself is not named as a defendant, and spokesman Clark Scott said the company did not engage in fraud and is cooperating fully with Microsoft.
Both the cases were filed in the Western Washington District of U.S. District Court.
Microsoft, which is seeking $250,000 in illicit profits and punitive damages in the RedOrbit case, says it has returned money to affected advertisers, primarily businesses in the news, science and health industries. The company also seeks damages, in an amount to be determined in court, in the John Doe case.
Microsoft sells online-ad space to advertisers through its service called AdCenter. The lawsuit alleges that RedOrbit, a former partner on Microsoft’s AdCenter service, denies the claim.
“We do not, nor have we ever engaged, assisted in, or condoned click fraud,” said Ralls, who began RedOrbit in 2002. RedOrbit is a small company and the site gets 3 million visitors a month, he said. “We are disappointed that Microsoft has made these completely unwarranted allegations and intend to defend against them vigorously.”
Microsoft said it detected the potential fraud early in 2009 when it noticed hits from RedOrbit.com spiked from an average of 75 a day to around 10,000 a day, said Smith.
“What was at one point considered to be highly or almost impossible to do, we have uncovered it is technically possible to do,” said Richard Boscovich, an attorney in Microsoft’s digital crimes unit.
Microsoft accuses RedOrbit, which was once an approved site on its AdCenter network, of using botnets and so-called parked sites to dramatically drive up the number of clicks on ads on the RedOrbit site.
But instead of simply use the botnets and sites to direct clicks to ads on RedOrbit.com as fraudsters commonly do, RedOrbit directed the traffic to its own servers where it scraped out the traffic referring information and replaced it with code that made it look like the traffic came directly to the approved RedOrbit site, Microsoft says.
“That was a unique feature. This is the first time we have seen this occur,” Boscovich said.
“Kudos to Microsoft for revving up and filing multiple lawsuits,” said Ben Edelman, an assistant professor at Harvard Business School, who researches online business. Edelman participated in a news round-table Wednesday where Microsoft announced the suits.
Microsoft filed its first click-fraud lawsuit, against a Vancouver, B.C., mother and son, in June 2009 and recently settled that case for an undisclosed sum.
Latest Update from Mr Eric Ralls :
"RedOrbit was selected by Microsoft to help them test their BETA advertising platform, known as pubCenter, and we participated for approximately five months beginning in September 2008. An anomalous click spike occurred over a brief period of time in January 2009, and we immediately worked with Microsoft to identify the reasons for the occurrence, including providing them with complete access to our logs. At the time, Microsoft did not conclude that there was any suspicious activity on the part of RedOrbit and we discontinued working with them.”
“RedOrbit did not participate in the scheme Microsoft alleged and was never paid for the clicks in question. We do not understand why Microsoft has chosen to launch this unsubstantiated lawsuit and public relations campaign against RedOrbit a year and a half after it failed to conclude that we had anything to do with the events in question. We look forward to refuting these claims in court.”