On Monday, Crafts by Veronica, a New Jersey-based retailer, filed suit in United States District Court against Yahoo and others, alleging breach of contract, unjust enrichment, civil conspiracy, and violations of New Jersey’s consumer fraud statute. According to an article on CNET News, the lawsuit, which the plaintiff seeks to pursue as a class action, alleges that
"Yahoo is charging for pay-per-click (PPC) advertising ‘even though defendants knew that a substantial percentage of click revenue resulted from PPC advertisements shown improperly, including in ways that contravene defendants' contracts with its advertising customers' . . . .
The lawsuit also alleges that Yahoo not only chose to ignore abuse of its PPC advertising system by spyware and typosquatter sites, but also ‘knowingly...manipulated that system for their own benefit, by increasing the volume of improper advertising displays during financial reporting periods when defendants were at risk of failing to meet investor expectations.’"
Readers of previous E-Commerce Law posts on this subject will not be surprised that a lawsuit of this sort has been filed against Yahoo. As settlements and verdicts related to these suits are publicized, more such suits will be filed. Hopefully, the flood of lawsuits will lead to improved systems to detect and control the practice of click fraud.
For more information about the lawsuit, see the following articles: Suit Levels Spyware, Typosquatting Allegations Against Yahoo on washingtonpost.com; Yahoo sued over alleged click fraud on CNET News; and Company Files Fraud Lawsuit Against Yahoo on WTOP News.
Update (5/8/2006): Eric Goldman has posted a detailed analysis of the two lawsuits filed against Yahoo. See Yahoo "Syndication Fraud" Lawsuits--Crafts by Veronica v. Yahoo and Draucker Development v. Yahoo on his Technology & Marketing Law Blog.