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Google Has to Cough Up $90 Mil

SAN DIEGO – Google Inc. said on Wednesday it had agreed to pay up to $90 million to settle its part of an industrywide lawsuit alleging Web search companies overcharge some advertisers by billing them for false customer leads.

Google’s proposed class action settlement stems from a suit filed a year ago by several plaintiffs, including Lane’s Gifts and Collectibles, in an Arkansas state court. It covers abuse of Google’s pay-per-click advertising system by outside parties.

The deal aims to resolve all outstanding claims against Google for so-called “click fraud” dating back to 2002, a spokesman said, but similar claims against the Mountain View, California-based company are outstanding in other courts.

At issue is “click fraud”, the abuse of search advertising systems for the purpose of driving up advertiser fees.

It involves a malicious party repeatedly clicking on an advertising link — either manually or using robots — and so generating a commission payment with each click.

Plantiffs argue Google and other search providers indirectly benefit from click fraud by doing too little to thwart it.

The $90 million would involve legal fees and credits — rather than any cash payments — to any of its advertisers who apply to be part of the class settlement, once the judge certifies the agreement, Google spokesman Steve Langdon said.

Also named in the original lawsuit were the search businesses of Yahoo Inc., and lesser players Walt Disney Co., Lycos Inc., LookSmart Ltd. and Findwhat.com Inc., which is now known as MIVA Inc..

A spokeswoman for Yahoo said her company was prepared to continue to defend itself against the legal action. A spokesman for Disney could not immediately be reached.

Google’s proposed settlement deal would also cover Google ad search partners including America Online and Ask.com who were also originally named in the suit, which alleged that click fraud was a widespread Internet industry practice.

The case covers all advertisers using Google’s pay-per-click advertising system from February 2002 through the date when the judge certifies the settlement. The final settlement hearing is expected to take place in coming weeks.

Google counts thousands of advertisers on its system but declines to disclose any actual numbers. The vast majority of Google’s revenues, around 97 percent, are the result of pay-per-click ads.

Critics have said the threat of click fraud is the single greatest risk to Google’s advertising-dependent business model. But the company has downplayed the risk, saying only a small percentage of the clicks on its search ads are fraudulent.

Google is the most popular provider of Web search. It makes money largely by selling small text based ads along the edges of search results pages on Google or on many partner sites who run Google ads on their own Web pages.

In a statement on Google’s Web site, Nicole Wong, associate general counsel, said the company would extend the deadline so all advertising customers over the past four years can apply for reimbursement for ad clicks they believe were invalid.

Under its existing policy, advertisers had 60 days to recoup any such losses. Instead, Google would offer credits regardless of when the click fraud occurred, Wong said. The credits can be used by advertisers to buy new ads from Google.

“We do not know how many will apply and receive credits, but under the agreement, the total amount of credits, plus attorneys fees, will not exceed $90 million,” Wong said.

Google has reported more than $7 billion in revenue during its first five quarters as a public company and has generated billions of dollars more since the system was first launched four years ago.

Yahoo spokeswoman Gaude Paez said nothing had changed as far as her company’s willingness to pursue the case.

“We stand firmly by our proprietary click protection and look forward to vigorously defending our position in court,” she said.

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