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The case was filed in the United States District Court for the District of New Jersey and names Crafts by Veronica as the class representative. Crafts by Veronica has purchased advertising exposure from Yahoo in the past, but now claims that much of that exposure came through spyware, typosquatting, and parked domains—none of which qualify as “popular, high-quality sites” that Yahoo advertisers were promised.

The lawsuit alleges that many of the reported problems have to do with Yahoo’s syndication network, a group of partner companies that take ads from Yahoo and display them on their own sites. Although many of these partners are reputable media companies, several of them are firms like Intermix and Direct Revenue, firms investigated as spyware purveyors by New York Attorney General Eliot Spitzer. Why would Yahoo remain in partnership with such companies? It’s simple—the relationship is highly lucrative.

Spyware advertising is far cheaper to offer than pay-per-click advertising on reputable websites, and the lawsuits alleges that Yahoo bills its advertising customers at higher rates, promises them good exposure, but then places ads with spyware providers at a fraction of its usual cost. This results in large profits for Yahoo, but generates few useful leads for the advertiser. The lawsuit describes the practice this way:

“By placing Class Members’ ads into illegal platforms such as spyware programs, Defendants wrongfully collect high search engine advertising fees for ads that are actually shown in contexts that are worth far less, if anything. It is well known that spyware advertising is much cheaper than search engine advertising. … But when Defendants and their Syndication Partners place Class Members’ ads into spyware, they continue to charge Class Members full price for these ads, and pocketing the difference between the high fees Class Members pay and the low cost of providing spyware-delivered advertising.”

A second allegation concerns typosquatting web sites, where Yahoo is accused of placing ads. Again, advertisers were promised that their message would be displayed in “popular, high-quality sites” and typosquatted domains can hardly be considered that. Advertisers are still being billed at the same rate, however, as if their ads were appearing on the Washington Post’s website.

“Particularly egregious is that Defendants even charge their advertising customers for ads shown on typosquatting web sites targeting those customers’ own names. Take for example Yahoo’s advertising customer Expedia.com. A user intending to visit the Expedia web site might mistype it as ‘expedai.com.’ At ‘expedai.com,’ the user sees a list of ads provided by Defendants, including an ad for Expedia, along with other customers of Defendants. If the user clicks the Expedia ad, the user is taken to the true Expedia site, which is where he or she wanted to go in the first place—without clicking an Expedia ad—and Expedia has to pay defendants a PPC [pay-per-click] fee.”

Finally, the suit alleges that Yahoo places some of its ads in parked domains, which “appear if users incorrectly guess, mis-remember or otherwise mistype a domain name.” Such advertising can hardly be considered “targeted,” but advertisers are billed as though it were.

The suit claims that most of these activities occurred through Yahoo’s network of affiliates, but that Yahoo was aware of the problems this created. This isn’t the first time that Yahoo has been accused of partnering with dodgy companies, either. Last year, Ben Edelman published a detailed look inside Yahoo’s connections with various alleged spyware providers.

Lawsuits over online advertising have grown in frequency over the last few years as the new medium has become increasingly important. Google recently paid almost US$90 million recently to settle a click fraud case, and Yahoo is now facing several lawsuits accusing it of both click fraud and syndication fraud. Will such cases make buyers more wary about paying large sums for online advertising? Perhaps, but the market is currently booming. These cases do suggest, though, that the digital age still has used for ancient wisdom: caveat emptor.

a. It is hard to compare affiliate networks. They work differently for different affiliates depending on what merchants they use. Acclaim Network has top-performing affiliate programs for credit related offers such as credit cards and credit reports; other networks are much better if you’re looking to promote wine. Similar for Amazon with Books.

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