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Microsoft (NSDQ: MSFT) filed its first ever lawsuit targeting click fraud Monday — and hinted that more might be on the way. The company al…

imageMicrosoft (NSDQ: MSFT) filed its first ever lawsuit targeting click fraud Monday — and hinted that more might be on the way. The company alleges that the defendants drained the ad budgets of rivals on Microsoft’s adCenter network by bombarding rival ads with clicks so that their own ads could get higher play in results. Microsoft says in its complaint (via NYT) that it ended up having to provide legitimate advertisers with $1.5 million in ad credits to compensate them for the defendants’ actions. The company is asking for an injunction as well as more than $750,000 in compensatory damages. A Microsoft attorney tells the NYT that the company has “decided to become more active in the commercial fraud area on the enforcement side… The theory is you can change the economics around crime or fraud by making it more expensive.”

John Battelle notes however that click fraud hasn’t actually been in the headlines much lately — and that’s likely because, while it remains a major problem, it’s on the decline. According to research firm ClickForensics, the average click fraud rate for all online ads was 13.8 percent during the first quarter of the year, down from 16.3 percent a year ago. The firm credits efforts by Google (NSDQ: GOOG) and Yahoo (NSDQ: YHOO) in part for the drop.

There have been other click fraud lawsuits filed in recent years by search engines. Google launched its first click fraud lawsuit in 2004 — against a Texas firm that signed up to put ads on its site via Google’s AdSense program and then clicked on those same ads to make money. At the time, CNET said it was one of the first ever click fraud lawsuits. Search engines have also found themselves on the opposite end of click fraud litigation. In 2006, Google agreed to pay up to $90 million (mostly in advertising credits) to settle a class action lawsuit brought by advertisers, who alleged they were charged but not reimbursed by Google for invalid clicks on their ads over a four year period. Microsoft was sued by a Florida online retailer last summer for much the same reason.

  1. This is very interesting. If Microsoft lose this click fraud case, the legal precedent can undermine the legitmacy of pay-per-click advertising, Google main revenue stream. Everybody knows there is no such thing as a "click" and the lawyers for these guys can bring that technical defense up. Again, this is interesting.

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  2. This will become a major problem for interactive marketers. It's great that the major players are taking action.

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