Advertiser sues Yahoo over pay-per-click program.

In Crafts by Veronica v. Yahoo! [D.N.J.], Crafts by Veronica filed a class action complaint against Yahoo!, Overture, and John Doe Companies alleging breach of contract, fraud, and related causes of action. Plaintiff had placed ads with defendants under defendants' pay-per-click advertising program.

In the complaint, plaintiff alleges that Yahoo! is one of the largest search engines on the Internet. Its business consists of operating a number of Web sites and showing ads on those sites, as well as providing ads to be shown by its various partners. The complaint alleges that Yahoo's revenues in 2005 were $5.3 billion. Defendant Overture, a wholly owned subsidiary of Yahoo!, allegedly provides technology and systems for showing, tracking, and charging for pay-per-click advertisements.

The complaint alleges that defendants charge their advertising customers every time an Internet user clicks on an advertiser's ad, a business model known as pay-per-click (PPC) advertising. PPC ads generally cost more when they reach users seeking certain products or when they reach certain demographic groups. Defendants specifically tout the quality of their sites and the third-party sites at which defendants display their ads. Defendants allegedly describe those third-party sites as "popular [and] high quality," specifically naming such distinguished partners as Microsoft, CNN, and the Wall Street Journal.

The complaint further alleged that defendants represent to their advertising customers that their ads are shown only to users who have shown interest in corresponding products or services (by conducting a related search, for example). Defendants promise that advertisers' ads will be "highly targeted" to such users.

Plaintiff's claim that defendants offer advertisers a choice between purchasing "Sponsored Search" advertising at search engines (to reach "search users" who are actively engaged in searching the Web) and/or "Content Match" advertising at content sites (showing ads "along with relevant articles, product reviews, and more"). Pricing for Sponsored Search is higher.

According to the complaint, PPC advertising systems easily lend themselves to abuse. For example, an advertiser's competitors could easily click on that advertiser's ad hundreds of times for the sole purpose of increasing that advertiser's PPC ad costs. This is a practice known as click fraud. The complaint alleges that defendants have knowingly engaged in click fraud 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.

In addition, the complaint contained allegations regarding spyware, which it defined as "a broad class of unwanted software ...