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A Click in the Pants: How Employers Can Fight Employee Click Fraud

18 Jul, 2017 By: Lauren Stocks-Smith, Ari N. Rothman, Douglas B. Mishkin

Your employees may be engaging in click fraud against you or your competitors. Either can cost you money and create possible legal liability. Here is what you can do about it.

What is Click Fraud?

Click fraud arises in the context of “pay-per-click” (PPC) advertising. Search engines use PPC advertising to charge advertisers a fee for each visit to a digital ad. This model is vulnerable to fraud: someone wishing to distort advertising traffic can simply click repeatedly on an ad with no genuine intent to view the product or service advertised.

Fraudsters commonly use “bots” to perpetrate click fraud. Bots are pieces of software planted on other peoples’ devices. After infecting a device, the bot can select advertisements on the device by surfing the web on hidden internet windows and mimicking mouse activity.

This misconduct has tormented digital advertisers for years. Fraudulent clicks – by human or bot – drain advertising budgets while sucking all benefit out of the ads. Who profits from this fraud? It depends. Some schemes aim to pad the pockets of search engines or ad hosts. Some are anti-competitive. Others are for employees’ personal gain, particularly if employee compensation is tied to the performance of the company’s online ads.

Fighting Employee Click Fraud Against Competitors

Two recent cases illustrate how employees engaging in click fraud against competitors can lead to employer liability.

Earlier this year, a California federal court addressed click fraud in Satmodo LLC v. Whenever Communications LLC. Satmodo sued Whenever, a main competitor in the walkie-talkie industry, for clicking on its homepage 96 times in a few minutes, evidencing “non-human operations.” As proof, Satmodo tracked the homepage hits to IP addresses near Whenever’s offices. The court found that these allegations state a claim under California’s Unfair Competition Law, warning that this alleged clicking scheme “violates the spirit of antitrust laws and significantly threatens competition.”

In Wickfire LLC v. Woodruff, a Texas federal court upheld a damages award of $2.3 million to start-up Wickfire for the fraudulent clicks and shady online practices of competitor TriMax. Wickfire presented evidence at trial that TriMax’s two top executives fraudulently clicked on Wickfire’s online ads more than 4,000 times, apparently requiring months of fake clicking for 12 to 14 hours each day. The court found that this evidence supported Wickfire’s claims for intentional interference with business relationships and civil conspiracy, and justified the jury’s award.

Fighting Employee Click Fraud Against Your Company

When employee compensation is based on advertising performance or website success, employees may try to inflate revenue or juice personal performance statistics by clicking on your website or ads. Such clicks simply waste your money by sucking dollars out of your budget with no corresponding benefit.

Mitigate this risk by making clear in written policies and training that such behavior is misconduct, that employees will be subject to discipline that possibly includes immediate termination, and that supervisors are responsible for monitoring employees for incidents of such misconduct.

How To Detect and Reduce Click Fraud

Scrutiny of your advertising analytics is a good early warning system for all forms of click fraud. Companies should monitor unusual activity from internal and external sources.

Investigate anything suspicious – like hits from your company’s own IP addresses, or your rival’s – and speak with your employees or competitors promptly. Inspect ad metrics and traffic patterns for other telltale signs of fraud, such as unusually high conversion rates and frequent users or keyword searches.

If you suspect that your employees are carrying out click fraud, look at their browsing histories. Detection software and summary reports can help flag fraudulent clicks, but technology alone cannot police this problem.

Morals of the Story

First, click fraud is a many-headed beast. While global hackers may dominate the news, executives and other employees are a primary source of internal liability.

Second, as digital advertising expands, so too will the temptation and the opportunity for click fraud. For example, click fraud has morphed into “install fraud” in the world of mobile applications, which rely on a similar “pay-per-install” advertising model for mobile phones. Your policies and monitoring should keep pace with technology trends in your industry.

Finally, employers who use online advertising should have a written policy that expressly prohibits click fraud, just as you expressly prohibit the theft of others’ trade secrets and the unauthorized use of others’ confidential information. Employees and supervisors should be trained about what constitutes click fraud and what to do if they detect it. Click fraud should be subject to discipline, including possible termination.

Ari Rothman and Douglas Mishkin are partners in Venable LLP’s Advertising and Marketing practice group. Lauren Stocks-Smith is an attorney in the firm’s Labor and Employment practice group. They may be contacted at (202) 344-4000.

About the Author: Lauren Stocks-Smith

Lauren Stocks-Smith

About the Author: Ari N. Rothman

Ari N. Rothman

About the Author: Douglas B. Mishkin

Douglas B. Mishkin

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