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"This puts out a warning to future potential perpetrators that this isn't just a game of cat-and-mouse," O'Brien said. "Real people are paying real dollars for this and if you're caught, you'll pay too."

Microsoft's Cranton took a similar view.

"Enforcement can play a critical safety role, supplementing technology and industry best practices, by using lawsuits and criminal prosecutions to stop the most egregious violators and hold them accountable for the fraud they commit," he said in his post.

World of Warcraft and auto insurance

The type of click fraud specifically alleged in the case is known in the industry as "competitor click fraud," in which the fraudster employs numerous invalid clicks on a competitor's ads, usually through automated tools using bots, malicious code, spiders or botnets.

This results in the competitor paying for the invalid clicks, and also in their ad budget being rapidly depleted, which means they get dropped from the top listing until the next ad cycle. At the same time, knocking them out of the rankings for a particular keyword can boost the placement of the fraudster's own sponsored sites.

According to the suit, Microsoft first suspected something in March 2008, when several auto insurance advertisers complained about a suspicious jump in traffic to their ads. After some investigation, Microsoft noticed a similar pattern occurring for advertisers for the online game World of Warcraft, but were perplexed about how the two instances could be related.

Upon more research, the company determined that the suspicious traffic came from two proxy servers that obscured the originators of each click.

"A cycle of events ensued whereby the defendants would update their attack methods to bypass the fixes implemented by Microsoft, and Microsoft would take additional steps to combat the fraud attacks," the suit said.

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Eventually, Microsoft figured out that Lam, who advertises for World of Warcraft virtual goods at sites he owns, was also being paid to direct traffic to low-ranking auto insurance sites.

The suit said Lam directed traffic to auto insurer competitors' Web sites, thereby sapping their ad budgets and allowing his own to move up in paid-search results.

When users clicked to his site, it requested contact information, which he then resold to legitimate auto insurance companies for an estimated $250,000, according to the lawsuit.

Microsoft "did a meticulous job of gathering evidence," O'Brien said. "Once Microsoft identified the [alleged] perpetrators, they kept monitoring the activity, added up the total amounts the perceived perpetrators benefited over 18 months and really spelled it all out."

Update clarifies O'Brien's comments.

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