Microsoft Sues Over Ad 'Click Laundering'

Microsoft said it has discovered a click fraud scam that could cheat search-engine advertisers out of "hundreds of thousands of dollars."

What's more, the company filed two federal lawsuits this week in an attempt to take down purveyors of the scheme.

"Microsoft will not tolerate fraud against our customers," Microsoft (NASDAQ: MSFT) General Counsel Brad Smith said in an online video. "Customers have the rock solid assurance that what they pay for on Bing, they get."

In most click fraud schemes, a person or a program imitates a genuine user clicking on a pay-per-click ad on a legitimate Web site or search results page, racking up bogus "clicks" that advertisers pay for. The novel scam that Microsoft described, however, secretly enlists real users to "launder" the source of the clicks, making them seem genuine.

"Without the user's knowledge, the infected computer mimics a legitimate search engine, but returns search results adulterated with useless parked domains -- i.e., Web addresses that appear to be relevant search results, but contain no meaningful content," Tim Cranton, associate general counsel for Microsoft's Digital Crimes Unit, said in a post to the Microsoft On the Issues blog.

If the user opens one of the domains and clicks on a link, what appears to be an inadvertent dead end is actually an ad click that's been laundered to seem legitimate to an ad platform provider such as Microsoft's adCenter. However, that click provides no value to the advertiser who pays for it, Cranton added.

In response, Microsoft filed a pair of lawsuits this week in the U.S. District Court for the Western District of Washington. One of the suits was filed against RedOrbit, Inc., a Tyler, Texas, firm that purports to sell photos, articles and videos on science topics, and its president, Eric C. Ralls of Dallas.

The other is made out to "John Doe Defendants" because Microsoft's lawyers say they have not yet been able to track down and identify the culprits in the second lawsuit.

Click fraud emerged as a scam in online advertising almost as soon as the technology for publishers to offer pay-per-click (PPC) ads arrived, and it has been an expensive annoyance to Google (NASDAQ: GOOG), Microsoft and Yahoo (NASDAQ: YHOO) ever since.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals.