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Click Defense, a retailer of online marketing tools, claims that it has lost at least $5mn to click fraud, an industry term for the practice of deliberately clicking on Web advertisements to artificially inflate the figure for the number of times an ad is clicked. Because Google charges advertisers on a per-click basis, the practice can prove very costly. In some cases companies have even employed people or computers to click on rivals' ads.

Advertisers pay a set amount, which can in extreme cases be as high as $95 per click. Their ads are run alongside standard Google search results, when the search keywords match those that the advertiser has allocated to their ad.

Google relies almost exclusively on ad revenue and rejected Click Defense's claim.

'We believe the suit is without merit and

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we will defend ourselves against it vigorously,' a spokesman said.

It said that click fraud is not a factor in its financial performance - the company made $1.3bn in the last quarter - adding that it has both sophisticated filters to distinguish between clicks generated through normal use by users and clicks generated by unethical users and automated robots, and has a dedicated team working on methods of prevention. In addition, should any fraudulent clicks get through, it says that it does not charge advertisers.

Neither Google nor its main competitor Yahoo! will disclose the extent of click fraud, though independent observers estimate it to be around 20 per cent of total ad clicks. However, Click Defense, which is one of a number of businesses that sells software to detect and protect against click fraud, reckons that it is as high as 38 per cent.

Last year, Google CFO George Reyes told an investor conference of the risk posed by click fraud.

'I think something has to be done about this really, really quickly,' he said, 'because I think, potentially, it threatens our business model.'

Google also sued a Texas-based company, Auctions Expert International, claiming that it had defrauded both Google and its customers by automatically and repetitively clicking on ads.

Google's share price recently peaked at $300, having been floated last August for $85.