A Yahoo Inc. (YHOO) advertiser has accused the Internet search engine of fraud, saying its ads have been appearing in spyware and "typosquatter" Web sites that take advantage of misspelled trademarks.
Crafts By Veronica, which makes fabric-covered photo albums, filed a lawsuit accusing Yahoo of breaching a contract by charging advertisers for pay-per-click ads shown improperly in "pernicious spyware programs" and on low-quality Web sites.
It names Yahoo; Overture Services Inc. (OVER), the search-ad company Yahoo acquired in 2003; and the John Doe Co., an unnamed company the suit identified as Yahoo's syndication partner.
Crafts by Veronica, which seeks class-action status, claims breach of contract, unjust enrichment, civil conspiracy and violations of the New Jersey Consumer Fraud Act. The lawsuit was filed Monday in U.S. District Court.
The lawsuit said Yahoo failed to protect advertisers from a practice known as "click fraud," in which competitors click on an advertiser's ad hundreds of times to run up their rival's advertising costs.
Besides ignoring such abuse, the lawsuit said, Yahoo increased the volume of improper advertising displays during periods when the search engine feared its earnings would not meet investor expectations.
It wasn't clear how many other plaintiffs are potentially included in the class suing.
Donna Siegel Moffa, the Haddonfield attorney who filed the case, did not immediately return telephone calls to her office Wednesday.
Yahoo spokeswoman Gaude Lydia Paez said the company would vigorously defend itself in the suit, but would not comment beyond that.