Issue # 7: Pay Per Click Advertising and Click Fraud

The amount of money spent on Internet advertising has grown steadily since 2002. As companies devote more and more of their advertising budgets to this emerging medium, they are confronted with the reality that not every "click" for which they are paying is the result of an action by an interested, potential customer.

Click fraud is a growing concern among Internet advertisers involved in the various pay per click (PPC) advertising programs sponsored by popular search engines. Recent cases filed against Google and Yahoo have heightened awareness of the problem as third-party vendors rush to monetize a solution. In the end, click fraud, which results in 14 to 30 percent of all clicks of PPC advertisements, is a problem inherent to the advertising model.

The sponsors of PPC advertising programs actually profit from click fraud; unless the click on an advertisement is obviously fraudulent (as defined in the terms and conditions applicable to the specific PPC advertising program), the PPC program sponsor gets paid for the click, whether it resulted from the actions of an interested consumer or not. As long as the problem does not cause the PPC advertising sponsors to lose revenue, they have very little motivation to address the concerns of advertisers.

Though an Internet advertiser may not be able to eliminate the effect of click fraud in PPC advertising, a company can reduce or manage its risk by:

• Understanding the Effect of Click Fraud on the Company’s Specific Advertising Plan. Some commentators have argued that click fraud is far less of a problem than generally believed and that it is unfair to expect Internet advertising to guarantee a certain Return on Investment (ROI). They point out, quite correctly, that no other form of advertisement guarantees that it will be viewed by an interested potential customer. However, many businesses and individuals expect their dealings on the Internet to differ significantly from their experience in other mediums of communication. In any event, a business embarking on a PPC advertising campaign must ensure that it can absorb the cost associated with wasted or fraudulent clicks.

• Carefully Reviewing the Terms and Conditions Applicable to the PPC Advertising Program. Most PPC advertising programs have terms and conditions that expressly address the issue of click fraud, detailing how the program sponsor identifies fraudulent clicks and outlining the specific procedure and deadlines which must be met by an advertiser who wishes to challenge the charges associated with certain clicks. An Internet advertiser must carefully review those terms and conditions and compare them to competing programs to fully appreciate the risk associated with a particular PPC advertising program.  This also ensures compliance with dispute resolution procedures that could save the company thousands of dollars of advertising expenses.

• Considering the Use of Third-Party Programs to Quantify and Resolve the Problem. Some third-party vendors advertise software designed to identify fraudulent clicks. The use of that type of software may give the Internet advertiser the information it needs to address the loss associated with click fraud through the PPC advertising program’s dispute resolution procedures or legal action.

Previous Posts in this Series

Issue # 1:  Protection of Domain Names

Issue # 2:  Protection of Original Website Content

Issue # 3:  Website Terms of Use

Issue #4:  The Potential for Universal Jurisdiction

Issue # 5:  E-Mail Marketing and Managing Risk Under the CAN-SPAM Act of 2003

Issue #6:  Keyword Advertising and the Effect of Trademark Law