Legal Briefing: Microsoft Steps Up Fight Against Click Fraud

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A daily look at legal news and the business of law...

Microsoft Sues to Stop Click Fraud. Will its Competitors Step Up Too?

For many years, Microsoft (MSFT) has struggled with a perception of being a nefarious company, while rivals like Google (GOOG) have been viewed more benevolently. But in at least one area -- a patch that impacts small businesses particularly -- Microsoft looks better: Policing online ad fraud that drives up businesses' advertising costs without ringing up additional sales.

A major Internet advertising model is "pay-per-click" -- advertisers pay for each click on their ad, the user's action presumably representing a potential customer. It's an economical advertising style that's increasingly popular with small businesses. If computer networks called botnets are rigged to transmit a lot of clicks on ads, the bills charged advertisers skyrocket even though the clicks don't represent potential sales. A 2009 piece from The New York Times discusses's experience with click fraud.

Now The Wall Street Journal reports that Microsoft has just sued RedOrbit and, separately, 20 John Does, claiming that they engaged in a new form of click fraud, which Microsoft discovered and named "click laundering." The WSJ has a nifty explanatory graphic of what click laundering is.

RedOrbit, a science news aggregator, denies the charges, reports CNET. At the time the spike in clicks that caught Microsoft's attention occurred, RedOrbit was testing an ad-network site for Microsoft. RedOrbit asserts that it immediately worked with the Seattle software giant to discover what happened. The 20 John Does reportedly used the HelloMetro Network to commit their fraud.

According to the WSJ, Microsoft filed another click-fraud suit in 2006, which it later settled, while Google filed a much smaller suit in 2004, and Yahoo (YHOO) has not filed any click-fraud suits ever. Given that click fraud represents a significant amount of ad clicks -- reportedly over 10% consistently -- Microsoft is not the only one experiencing fake clicks. After all, Google and Yahoo are the largest pay-per-click networks, according to the Times piece, and Google was sued in 2006 for not sufficiently refunding advertisers for fake clicks (settled).

So when will Google and Yahoo step up to shut down the fraudsters?

AIG's Cassano Off the Hook

The Wall Street Journal reports that American International Group (AIG) executives, including the notorious Joseph Cassano, will not face criminal charges related to AIG's role in the financial meltdown. Cassano headed an AIG unit called Financial Products. The division's trading in mortgage-related credit default swaps brought down AIG, precipitating a government bailout in September, 2008.

Financial Fraudsters Face a New Sheriff...

New York's Attorney General, currently Andrew Cuomo, has often been dubbed the "sheriff of Wall Street" because a New York state law -- the Martin Act -- and Wall Street's New York location, give the office unparalleled legal powers and jurisdiction over the banks. But it seems one more law office in the U.S. wants a shot at the Wall Street sheriff title -- the U.S. Attorney for the Eastern District of Virginia (EDVA).

According to the Blog of the Legal Times, that district just announced a financial fraud task force with the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Bureau of Investigation, and the Virginia Attorney General, among others. Although the EDVA lacks the Martin Act, the joint resources and expertise of these agencies should enable effective federal securities law enforcement.

For those wondering how the EDVA gets jurisdiction over Wall Street, the answer is simple -- and virtual: The SEC's EDGAR database, in which all the companies file records, is located in the district. In 2007, the Fourth Circuit confirmed that EDGAR's location was sufficient to establish the EDVA as an appropriate venue.

...But Maintain Existing Legal Protection

Senator Arlen Spector's (D-PA) attempt to undo a Supreme Court decision that prevented prosecution of "aiders and abettors" of financial fraud didn't make it into the financial reform bill passed by the Senate, reports the Am Law Litigation Daily.

And in the Business of Law...

Absorbing deferred associates is proving hard for firms, reports Above the Law, in an item focused on the situation at Dewey & LeBoeuf. The firm is offering some another deferral year or four months' severance.