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Company to take Google to court
(News & Observer, The (Raleigh, NC) (KRT) Via Thomson Dialog NewsEdge) Dec. 20--A North Carolina Web-hosting company wants to take Wall Street's Internet darling to court.
AIT of Fayetteville has asked to become the lead plaintiff in a lawsuit against search engine Google. The company says that Google doesn't adequately protect its advertisers against "click fraud," which occurs when people or organizations click on Internet advertisements without planning to buy anything.
Since companies pay Google for each click on their ads, their competitors can use click fraud to boost the amount that advertisers pay. Companies that host pages containing Google ads also can click on the ads continuously to generate revenue for themselves.
AIT spent $475,000 advertising with Google between 2003 and 2005. When the company noticed that its returns on the investment were declining, logs of clicking activity showed that 60 percent of the clicks on its ads were fraudulent, said chief executive Clarence Briggs.
"We lost a great deal of money, and I asked for my money back, and they didn't give it back," he said. AIT -- no longer a Google customer -- is refusing to pay $90,000 it owes for the last 90 days of its contract. Other search engines such as Yahoo!, MSN and AltaVista have been much more willing to work with AIT regarding click fraud, Briggs said.
When the company tried to join a potential class-action lawsuit filed in June against Google, the Colorado firm that filed the suit identified AIT as an excellent lead plaintiff, Briggs said. This month, Click Defense, a click-fraud detection company, filed a motion to be replaced as lead plaintiff by AIT. A federal judge in the Northern District of California will hear the motion in January. In May, the judge will consider making the suit a class-action case.
Click Defense and AIT claim that Google has failed to take significant measures to track or prevent click fraud, and that it fails to adequately warn customers about the issue. The search engine also fails to adequately notify advertisers if they have been the victims of click fraud, nor does it refund their money, the 18-page complaint states.
"Google has an inherent conflict of interest in preventing the click fraud since it derives the same amount of income from each fraudulent click as it does from each legitimate click," the companies said in the complaint.
The companies think that thousands of companies have been negatively affected by click fraud through ads on Google.
They have asked the court to award $5 million or more for breach of contract; to require Google to refund advertisers' money earned from fraudulent clicks, plus interest; and to order Google to disclose the extent of click fraud. Click Defense initially had four complaints against Google: breach of contract, negligence, unjust enrichment and unfair business practices. The judge dismissed the claims for negligence and unjust enrichment in September.
A Google spokesman said the company had received the motion papers and was reviewing them.
The company doesn't talk much about click fraud, but Google officials have told investors that it is not a big issue, said Philip Remek, media analyst with Guzman and Co. Google says it constantly monitors for illegitimate clicks, -- and promptly refunds fees when click fraud is discovered, he said.
Most analysts aren't following the AIT/Click Defense suit "because nobody thinks it's going to succeed," he said. "While we know click fraud is an issue, unless someone proves in a court of law that Google is not being responsive to legitimate click-fraud data ... no one will give credence to such concerns."
But the suit is interesting because of Google's revenue growth and Wall Street's high expectations for its future, Remek said. Google's revenue increased 96 percent to $1.6 billion in the quarter ended Sept. 30, and its profits exploded from $52 million to $381 million. All but $19 million of Google's revenue comes from advertising.
"If something comes of this suit, it could be very significant," Remek said.
The case has turned a spotlight on AIT, which has 140 employees and $30 million in annual revenue. The company hosts more than 210,000 Web sites for thousands of clients, including Time Warner, Microsoft, Pizza Hut and the United Nations, Briggs said in a declaration filed with the court.
But not all of the attention has been welcome.
While other companies have contacted Briggs about joining the class action, he said, the company thinks it is being expelled from listings in Google's search engine. Refusing to advertise on Google means Briggs is losing access to potential customers who use the search engine, he said. The lawsuit "scares the hell out of me," Briggs said. "If anything, it's going to hurt my business."
But somebody had to stand up to Google and the people committing click fraud, he said.
"It's stealing," Briggs said. "I've been in this business for 10 years, -- and it needs to get fixed."
Click fraud is so common that it has spawned a whole industry of companies offering click auditing and reporting services. Who's Clicking Who, which bills itself as the original click-fraud detection company, began in 2001. At last count, the company had at least 30 competitors, said Brian Boockholdt, vice president of sales.
An action against Google might force smaller search engines to change their practices, he said. But for the suit to be successful, it will have to be certified as a class-action case, Boockholdt said.
"This is a worldwide, multibillion-dollar business, and it needs to be a groundswell," Boockholdt said. "It's got to be many voices, -- and they've got to band together and be singing the same song to get the attention of the court."
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