Member Article

Fraud is just a click away

With Watson Burton LLP Law Firm

Recently published reports suggest that this Christmas will have been the most successful ever festive period for many of the large online retailers. Figures indicate that online sales will be up in the UK by between 40-50% on Christmas 2005, with some retailers reporting increased sales of up to 60%.

Such indications highlight the fact that the number of us using the internet as consumers is rapidly increasing. Businesses are keen to capitalise on this and are using the internet more and more as a marketing medium.

While the large global organisations are able to spend huge amounts on such online advertising, many small to medium sized online businesses use advertising on search engines as their prime method of attracting visitors to their websites, which will hopefully create more income.

Such advertising works by a link appearing on the search engine when a key word is searched for. Users can then click on the advertisement link to be taken directly to the advertiser’s website. The charges for these advertisements are based on the number of times users click on the link, creating a “pay-per-click” scheme. As the cost is not fixed, the organisation placing the advert is apparently safe in the knowledge that they will effectively only pay if the advert is successful in creating increased traffic to their website. However, due to “click fraud”, such an assumption cannot be made.

Click fraud can take several forms. The most basic is that the fraudster will employ low paid staff, often in third world countries, to literally sit and repeatedly click on the adverts of their competitors. This has the effect of increasing their competitors’ costs, making them less competitive in the market place, and creating a drain on their marketing resources. They will be paying for clicks which have no chance of creating new custom.

A more advanced variation of the above is the fraudster creating and using an automated computer program which will locate and click on the adverts of their competitors, removing the need for the fraudster to involve others in their scam.

Another form of click fraud capitalises on the fact that large search engines resell their adverts on to other websites owned by unrelated third parties. The advertiser continues to pay the search engine per click but a proportion of this sum is passed on from the search engine operators to the owners of the third party websites. The click fraudster in this scenario creates several websites and then signs up as a reseller of the larger search engine’s advertising. The fraudster then uses the methods described above, either automated or manual clicking, to repeatedly click on the adverts which they have bought. As the fraudulent party receive a share of the ‘cost per click’ received by the original search engine operators, each fraudulent click which they commission will be earning them money. Again, the victim is the advertiser who is effectively paying for nothing as no benefit will come from these clicks.

Businesses have realised that this is now a real problem and large search engines have had to pay out millions of dollars in the United States to settle claims brought by advertisers who claim that they did not do enough to protect them from such fraud. Google paid out $90m to settle one group action last year. They have since taken steps to increase security on their site to try to protect advertisers further.

Online advertisers should take care to regularly monitor their online marketing performance to make sure that such investment is reaping rewards. They should also monitor the clicks each advert is receiving and monitor where these hits are coming from. Just as one would check their credit card statement for irregularities to guard against fraud, businesses should monitor their online marketing data in the same way. Businesses should also consider employing the services of online marketing solutions organisations who can provide policing of online advertising as well as producing visible results as to how effective advertising is, allowing any problems to be spotted quickly. If fraud is identified, a specialist solicitor can assist in attempting to recover any losses suffered.

The large search engines will themselves be concerned as they rely on the income from such advertising to make up over 90% of their income. Indeed, the Chief Financial Officer of Google, George Reyes, stated that click fraud is the “biggest threat to the internet economy”. However, considering that he said this back in 2004, it is clear that this problem is not going to go away quickly and highlights that all parties must be vigilant and mindful of this ongoing threat.

Tim Dennis is a Trainee Solicitor in the Commercial Fraud Team at Watson Burton LLP, which is headed by Mark Heath. Should you have any queries about this article or any other fraud matter, please contact tim.dennis@watsonburton.com or mark.heath@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .