News

Yahoo Sued for 'Syndication Fraud'

By Dave Gradijan

May 03, 2006 — CSO — Yahoo and a handful of unidentified third parties are being sued for their alleged participation in “syndication fraud” schemes, in which advertisers that paid the search giant to post their ads on related search-results pages and on partner websites had their ads displayed via spyware and adware products, and on sites with similar names to popular Web locales or companies, called “typosquatter” sites, The Washington Post reports.

Within the suit, filed in a federal court in New Jersey, the plaintiff charges Yahoo with consistently employing its business relationships with typosquatter and adware websites to build additional revenue during earnings time, according to the Post.

The complaint reads, “Not only have Defendants turned a blind eye to abuse of their [pay-per-click] advertising system, but Defendants knowingly have 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.”

An attorney for the plaintiff in the case, Ben Edelman, would not disclose their source of information regarding the alleged syndication fraud, saying only that the truth would be exposed should Yahoo decline to settle the case, according to the Post.

“Yahoo ought to settle this case, but they ought never have allowed this problem to fester to the extent that it has,” Edelman told the Post.

The suit claims that advertisers were defrauded by Yahoo and associates because they paid to have ads displayed next to search results that are triggered by certain keywords, which companies bid for; however, their ads were instead displayed via spyware and adware products on sites with little or no traffic, the Post reports. The advertisers were still charged the same amount as if the ads were displayed in the proper locations, next to related search results only on high-trafficked sites, according to the Post.

Direct Revenue and Intermix were named as “spyware vendors” within the complaint, and both companies were recently sued by New York Attorney General Eliot Spitzer for violations of consumer protection laws. For related coverage, read N.Y.’s Spitzer Sues Another Spyware Firm.

Yahoo is facing additional “click fraud” accusations in courts in California and Arkansas, according to the Post.

Yahoo did not respond to the Post’s inquiries before the story was posted.

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