Yahoo settles "click-fraud" lawsuit

Advertisers pay fees each time an ad is clicked. Click fraud is a practice where a company would click on its competitor's online advertisements for the sake driving up that company's costs.

A federal judge approved on Wednesday a settlement agreement between Yahoo Inc (YHOO) and Checkmate Strategic Group (the advertisers) for allowing "click fraud," and overcharging them in advertising fees.

The terms of the settlement: Yahoo would pay $4.95 million in legal fees. Yahoo will also investigate potential click-frauds on disputed charges since January 2004, not just those received within the past 60 days.  Yahoo will pay cash refund to advertisers.

Google (GOOG) also settled a similar case last March.  Its settlement was $90 million, far more than Yahoo's settlement. However, while Google paid $30 million for legal fees it had a cap of $60 million for credit to advertisers. Another difference is that while Google's $60 million is offered in credit, Yahoo offers cash refunds without a cap.

Yahoo is optimistic, though, that the settlement will be a relatively small amount, especially compared with its $9.1 billion ad revenue from January 2004 through March of this year, due to the safeguards it has had in place and its Clickthrough Protection, as Yahoo's press release says.