Redmond, Washington — In a move that is depicts a potentially far-reaching accusations for the problem of click fraud in paid search, Redmond, Washington, software maker Microsoft earlier this week filed a civil lawsuit against three Canadian individuals for allegedly manipulating clicks on search ads to hurt rivals and give their own ads an advantage in ranking.
Redmond, in a complaint filed with the U.S. District Court in Seattle, targets three alleged fraudsters after an 18-month-long investigation that involved promoting the sale of World of Warcraft currency and collecting auto insurance referral fees, is seeking US$750,000 in damages from the trio, who allegedly used hundreds of thousands of IP addresses to register the clicks, costing the software giant approximately $1.5 million in reimbursements to injured advertisers.
Microsoft claims that the three alleged fraudsters Eric Lam, Gordon Lam, and Melanie Suen, of Vancouver, British Columbia, through various companies, abused Microsoft’s adCenter by conducting a campaign to drive up clicks at Web sites that compete with theirs.
Further to seeking to recover damages from Lam and his cohorts, Microsoft said in its complaint that it provided $1.5 million in credit to advertisers impacted by the allegedly faked clicks.
“It is a great example of competitor click fraud,” Steve O’Brien, vice president of marketing at Click Forensics, said in a statement — a form of click fraud in which someone clicks on a competitor’s ads in order to spend down their ad budget as fast as possible with worthless clicks.
The Lams and Suen run two Web sites, one centered on auto insurance and the other revolved around the video game, “World of Warcraft”. It is precisely because the verticals are so unrelated that Microsoft’s investigators tumbled to the fraud, according to O’Brien.
“They apparently used hundreds of thousands of IP addresses to click on competitor Web sites,” he said. The scope of the fraud “was shocking. Microsoft had to reimburse injured advertisers more than $1 million.”
“Microsoft collected substantial evidence that a handful of individuals were likely responsible for these click fraud attacks, which affected online advertisements related to auto insurance and the online role playing game, World of Warcraft,” Microsoft’s associate general counsel Tim Cranton said in an online post Monday. “Once we became aware of the click fraud attacks, we quickly took action to address any impact on advertisers and to enhance safeguards to further protect our network.”
The lawsuit flashes a light on a long-established risk of the paid search business, in which approximately 17 percent of all online ad clicks are bogus, according to Click Forensics.
To deal with the issue, all the major search engines have full-time staff who work, largely unnoticed, to detect odd click patterns, verify that click fraud has occurred and then issue credits to advertisers victimized by the practice, O’Brien said.
But he added that Microsoft’s suit serves as a wake-up call.
“People see the stats, but it is abstract — they think, ‘It is not happening to me,’ so this case puts a face on it, makes it tangible,” O’Brien said. “Actual people went out of their way to deploy bots to perpetrate click fraud and harmed multiple advertisers who had every reason to think the clicks were valid.”
Nevertheless, the overall occurrence of click fraud declined in the first quarter of 2009, according to Click Forensics. Tom Cuthbert, the click auditing company’s president, attributes this to progress Google and Yahoo have made blocking click fraud driven by botnets. However, the company reports that click fraud from malicious scripts — JavaScript code that executes with the loading of a Web page — is on the rise.
Yet there is also a growing cognisance that the situation needs to change. Last year, Google and Yahoo joined Click Forensics in improvising self-regulation over what constitutes click fraud. To help make the industry more transparent, the Interactive Ad Bureau, an industry trade association, recently issued pay-per-click guidelines.
“The vast majority of online advertising activity is legitimate, of course. But like most online activities, there are areas where fraud can be found,” Microsoft’s Cranton, wrote in a blog post. “The online advertising industry has been making strides in this area for years, implementing technology, best practices and techniques to help address issues such as click fraud. Today’s action is one more step to expand that effort by utilizing the legal system to combat click fraud.”
While the damages may pale in comparison to the billions being spent across the industry on paid search listings, nevertheless, it is a landmark action that marks a changing attitude toward click fraud, which has emerged as a major blight on the space.
Neither Microsoft nor Blizzard immediately responded to a request for comment.