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Yahoo Settles Clickfraud Lawsuit

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A California judge has approved Yahoo's proposed settlement of a class action click fraud case brought against the company by Checkmate Strategic Group in June 2005.

Yahoo believes the settlement will cover all click fraud claims that have been filed against Yahoo, including a suit filed by Lane's Gifts and Collectibles in Arkansas last year against both Yahoo and Google.

The terms of the settlement include a cash payment of $4.95 million to plaintiffs' counsel and a provision that will allow advertisers to file a claim for Yahoo to investigate potentially fraudulent clicks back through January 2004. Yahoo will pay refunds to advertisers who file claims if it discovers evidence of fraudulent clicks.

"We're very pleased with the terms of the settlement," said Reggie Davis, associate general counsel for Yahoo. "We believe it's a reasonable and fair settlement."

What does it mean for Yahoo advertisers?

The cash payment is far less than the $90 million settlement Google agreed to last March to resolve the Lane's Gifts class action click fraud case. In that case, up to $60 million was allocated for credit to advertisers, while plaintiffs' council received $30 million.

The Yahoo settlement differs from the Google settlement in other ways, as well. Google is offering credit to advertisers, rather than cash refunds, with a cap of $60 million. Yahoo, by contrast, is offering cash refunds, and there is no ceiling on the amount it will refund if it finds evidence of click fraud, though the company is optimistic that the refund amounts won't be onerous due to the safeguards it has had in place.

Yahoo says it believes the favorable terms are due to the strong position it took maintaining that its proprietary system does a good job at protecting advertisers from click fraud. To bolster its position, Yahoo invited the plaintiffs' attorneys and their experts to meet with Yahoo's clickthrough protection team, examine its systems, ask questions and attend presentations to better understand the controls the company has in place to filter out questionable or fraudulent clicks.

Yahoo says that its clickthrough protection system has identified and not billed advertisers for billions of clicks during the past eight years, all the way back to the early days before Yahoo purchased Overture and its sponsored listing technologies. Clicks not billed for included obvious click fraud, but also other clicks that the company believed shouldn't be billed to advertisers (for example, blocked IP addresses, double-clicks, back browser clicks and so on).

Yahoo said that as part of the settlement it is taking five specific steps to combat click fraud:

1. The company is extending the claims period for advertisers suspecting fraudulent activity from sixty days to two and a half years, or back through January 2004. Yahoo will investigate all claims filed under this one-time extension and offer cash refunds to advertisers if it finds questionable activity.

Judge Taylor, a retired federal judge, will be overseeing the extended claims process. His role will be to ensure that Yahoo sticks to the agreed-upon process, and he will also be available to review advertiser appeals if they are not satisfied with the results of Yahoo's investigation.

2. The company plans to appoint a dedicated traffic quality advocate to act as ombudsman for advertisers.

3. Once a year Yahoo plans to host a panel of individual advertisers to tour the company's clickthrough protection headquarters, allowing them to ask questions and provide feedback. The company will also seek advice from this panel.

4. Yahoo plans to work with reputable third parties to develop an industry wide definition of click fraud, a list of recognized click bots, and take other measures to garner awareness of the issue and what's being done to combat the problem.

5. Yahoo plans to build a "traffic quality resource center" for advertisers, providing much more information about traffic quality, including extensive FAQs about the company's click-through protection methodology.

In addition, Yahoo said it is taking steps beyond the terms of the settlement to respond to advertiser needs.

"Advertisers are interested in understanding more about click through protection and click fraud," said John Slade, senior director, Yahoo! clickthrough protection. He said the company plans to provide advertisers with better visibility in turnaround time on complaints on click fraud, responding within a specified time frame.

He said Yahoo will also offer more clarity around refunds on click fraud, including additional detail describing more specifically what the company has found in refunds or credit notices—especially in better documenting the differences between click fraud and other traffic variances that might be misinterpreted as click fraud.

More information on the settlement in Yahoo's official press release, Yahoo! and Click Fraud: Our Commitment to Protecting Advertisers.


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