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May.19, 2010, 5:23 P.M. ET, Source: DOW JONES NEWSWIRES
SAN FRANCISCO (Dow Jones)--Microsoft Corp. (MSFT) Wednesday said it filed separate lawsuits concerning an emerging form of online-advertising click fraud that it is calling "click laundering."
The software giant said it uncovered the latest version of click fraud after dramatic and irregular growth in traffic on two sites within its Microsoft adCenter network. The company said the scheme could have defrauded advertisers of hundreds of thousands of dollars.
Click fraud, in general terms, inflates the number of clicks that an ad on a website receives, increasing what advertisers--who frequently pay per click--owe the website.
The scam is as old as online advertising, and companies have found ways to control it. Click laundering is a new twist in click fraud that uses additional techniques to make invalid ad clicks appear to originate from legitimate sources, in much the way that money laundering makes illegal profits appear legitimate.
"This is a warning shot to the advertising sector that fraud is getting more sophisticated," said Brad Smith, Microsoft's general counsel and senior vice president.
Microsoft filed one suit against Texas company RedOrbit Inc., which claims to be "the premier internet destination for space, science, health and technology enthusiasts around the globe." The other suit was against unknown parties. Both lawsuits were filed this week in the U.S. District Court for the Western District of Washington.
Eric Ralls, president and founder of RedOrbit, said, "We do not, nor have we ever, engaged, assisted in or condoned click fraud. We are disappointed that Microsoft has made these completely baseless allegations, and intend to defend against them vigorously."
Microsoft accused RedOrbit of using "park" sites to redirect clicks on Microsoft ads. The clicks were then "scrubbed" so that fraudulent clicks would be more difficult to detect, Microsoft said.
The software company said it first noticed the problem in January last year. After it stopped the practice, it began a formal investigation into the matter the following month, Microsoft said.