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Retailer Lane's Gifts had led a class action against the search engine alleging that it did not do enough to eradicate fraudulent payments through AdWords. Google says it will pay out up to $90 million in legal fees and compensation in the form of credits for further advertising to companies who believe they have been affected by click fraud.

If approved by the judge in the case, the agreement will cover all advertisers who claim to have been charged but not compensated for invalid clicks as far back as 2002 when the pay per click programme was introduced.

Google,

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in common with the other search engines, makes the majority of its profits through its AdWords system. Retailers bid on words that they think people looking for their products are likely to enter in the search box. Google gets paid every time someone clicks on an ad. Click fraud occurs when retailers are charged for clicks originating from someone who has no intention of purchasing goods or services. Click fraud often happens when site owners deliberately click on ads on their own pages to get payment from Google. Sometimes click fraud is also carried out by rivals who simply want to bleed money from a competitor.

Google says that it normally reimburses victims of click fraud for up to 60 days prior to notifying the company of a problem. Legal fees aside, the settlement will probably cost Google very little as it will have plenty of spare inventory to spread out the 'free' advertising.

It has been suspected for many years that click fraud is widespread among the search engines even though they all claim to have procedures in place to halt fraud, for example by detecting repeated clicks from the same IP number.