Microsoft sues alleged click fraudsters

A year-long game of electronic sleuthing has culminated in a lawsuit against three alleged "click fraudsters", whom Microsoft accuses of manipulating its online advertising business.

The tech giant sued three Canadian residents who it says were fraudulently clicking on the adverts that appear on its MSN search engine, costing it at least $750,000 (£456,000) in profits, according to a Seattle court filing.

The emergence of search-based advertising – where companies bid to have their ads appear at the top of search engine results and then pay depending on how many people click on the ads – has revolutionised the marketing industry.

But it has also spawned a whole sub-industry of fraudulent schemes to manipulate the system for personal enrichment, and Microsoft says that Gordon Lam, Eric Lam and Melanie Suen, of Vancouver, were running at least one such scam at its expense.

Eric Lam is alleged to have been making money from selling sales leads to insurance companies, and manipulated MSN's search results so that his own ads appeared higher in the results. According to the theory set out by Microsoft, Mr Lam generated fake clicks on rival firms' ads, so that they would quickly exhaust their marketing budgets.

Microsoft first noticed a peculiar spike in the number of searches for "auto insurance quote", and in the number of people clicking on associated ads, more than a year ago. Proxy servers were scrambling the address of computers behind the searches, but the company's engineers embarked on what it calls a year-long game of cat and mouse, limiting or barring traffic from individual servers and forcing the Lams to use alternatives, it is alleged. Over that period, the company was forced to pay back $1.5m (£900,000) in revenue to advertisers that were charged for the fake clicks.

Attempts to contact the defendants have been unsuccessful although, reached by The New York Times, Gordon Lam said he had not yet seen Microsoft's lawsuit and declined to comment further.

Click fraudsters either pay individuals or, increasingly, use automated programs hijacking personal computers to generate bogus clicks. The motives for click fraud are manifold. Companies may use the scam to jack up "pay per click" bills for rivals. Google and other search firms also place links to its advertisers on affiliate websites and share revenues with those affiliates, giving an incentive to inflate the number of clicks. Additionally, some mischievous computer programmers are simply having fun at search engines' expense.

ClickForensics, a technology consultancy that monitors internet traffic, believes 14 per cent of all clicks on online adverts were fraudulent in the first quarter of this year, down from an average of more than 16 per cent in 2008.