Google, the search engine giant, has offered up to $90 million to settle a class action lawsuit by advertisers who accuse it of overbilling them through "click fraud".

The move, announced on the official Google weblog, will give advertisers credits to reimburse them for "invalid" clicks over the past four years

Click fraud, which is not actual fraud as defined in criminal law, is as old as the internet itself. But it has become a defining issue for Google, the world's most valuable internet company, which makes 99 per cent of its income from pay-per-click ads.

The fraud comes in various forms and both propagating and fighting it have become niche industries in their own right.

Click fraudsters commonly create dozens of websites and sign up as resellers of Google advertising and then use either computer scripts, infected "zombie" computers or even low-paid workers in the Third World , to click repeatedly on adverts to earn money from Google for the sites.

Another twist involves clicking thousands of times on the adverts on a rival website so that the search engine's anti-fraud mechanisms are alerted by the sudden increase in traffic and that site is blacklisted as fraudulent by Google.

The other main form of click fraud is when an advertiser's competitors persistently click on their links, upping the amount their rival will be billed on a pay-per-click basis by the host site. Although many advertisers pay their host only a few cents per click, those selling high-value goods or services with good repeat revenues can pay as much as $100 per click so even "drive-by click fraud" - casually clicking on a rival's advert every time you see it - can end up costing thousands of dollars for businesses.

The problem is that Google and its search engine competitors tend to win every which way, especially when groups of business rivals selling porn, ringtones or other web favourites are busy clicking away on each others' adverts, skewing attempts to work out what the real return on investment (ROI) should be.

Google says it does its best to root out fraudulent clicks, monitoring traffic patterns and internet addresses constantly. Some studies have suggested that as many as one in three clicks could be false, although the figure is more commonly put at 10 per cent.

In 2004, Google's Chief Financial Officer, George Reyes, described click fraud as "the biggest threat to the internet economy". It was a comment that his colleagues have since tried to play down - Google claims that only a tiny proportion of clicks are fraudulent, although it does not say what percentage.

The company also argues that it is clearly in its own interest to tackle click fraud since advertisers will only continue to pay up-front for future clicks if they retain confidence in the system.

The class action lawsuit against Google and other search companies including America Online (AOL) and Yahoo! was filed last February by an Arkansas gift shop that alleged that the companies deliberately and knowingly over-charged for internet advertising.

In the suit it was alleged that the defendants had "grown the Internet PPC [pay per click] advertising market while failing to disclose that they have routinely and systematically overcharged and/or overcollected for PPC advertising revenue from their customers".

In her blog entry, Google's Associate General Counsel, Nicole Wong, said that the settlement offer was not final until it was approved by a judge. If it goes ahead, all of Google's advertisers will be able to claim for fraudulent clicks from 2002, when Google set up its pay-per-click advertising programme.

"We do not know how many will apply and receive credits, but under the agreement, the total amount of credits, plus attorneys fees, will not exceed 90 million dollars," Ms Wong said.

Google's offer also covers its ad search partners AOL and Ask.com, which were named in the Arkansas suit. But a spokeswoman for Yahoo!, the internet portal that is one of Google's biggest rivals in pay-per-click advertising, said it would continue to contest the suit.

Other companies named in the suit were Walt Disney, Lycos , Looksmart and FindWhat.com.

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