Yahoo Settles Suit Over ‘Click Fraud’

Yahoo Inc. settled a lawsuit brought by advertisers who claimed they paid for clicks on ads that had no chance of generating sales.

Yahoo will pay $4.95 million in plaintiffs’ legal fees and offer credit or cash refunds to advertisers shown to be victims of “click fraud” since January 2004, Gaude Paez, a spokeswoman for the Sunnyvale, Calif.-based company, said Wednesday.

The lawsuit, filed in June 2005 in U.S. District Court in Los Angeles, alleged that Yahoo failed to do enough to track or prevent click fraud, which occurs when rivals or website operators click on a company’s ads to drive up its marketing costs. Google Inc., owner of the most-used Internet search engine, settled a similar suit in Arkansas in March.

“These suits have come out because advertisers felt the search engines had not been responsive enough,” said Danny Sullivan, editor of London-based SearchEngineWatch.com, which tracks the search industry. “That’s put them on notice.”

The suit against Yahoo, which sought class-action status, was filed by CheckMate Strategic Group Inc., an asset-search company in Delray Beach, Fla.

Reggie Davis, Yahoo’s associate counsel, declined to say how much the company expected to pay out in the settlement.

As part of the settlement, Yahoo will appoint a “quality advocate” who will communicate with advertisers about click fraud, Yahoo said.

The company also pledged to add online information telling advertisers how to monitor the performance of their ads.

Yahoo agreed to host a group of advertisers each year to assess the company’s software and will seek to work with a third party to create a definition of click fraud.

Google, based in Mountain View, Calif., agreed to pay as much as $90 million in March to settle a click-fraud suit filed in state court in Texarkana, Ark.

Shares of Yahoo rose 41 cents to $31.92.