Yahoo Faces Suit Over “Defective” Technology

    May 16, 2007

A new class action lawsuit has made some serious allegations against Yahoo: the company supposedly lied to investors about its “defective” search advertising technology and its odds against Google.  That’s bad enough, but Yahoo’s legal team may be in for a tough fight for another reason, as well.

The plaintiffs are represented by Lerach Coughlin, “a 180-lawyer firm with offices in San Diego, San Francisco, Los Angeles, New York, Boca Raton, Washington, D.C., Houston, Philadelphia and Seattle.”  And the firm has made known that “Lerach Coughlin lawyers have been responsible for more than $20 billion in aggregate recoveries.”  Wow.

Still, the success (or failure) of the suit depends on those briefly-mentioned accusations, the crux of which is that “Yahoo! generated fraudulent revenue by deliberately misleading Internet advertising business customers to induce these customers to buy Yahoo! advertising products through deceptive means.”

That would amount to a violation of the Federal Securities Laws – the same things that were involved in the Enron scandal.

The legal complaint then adds insult to injury, saying, “Yahoo!’s advertising technology was operationally defective, causing its own advertising offerings to substantially under-perform those of its rivals.”

Obviously, this all sounds quite bad.  Is Yahoo screwed?  Danny Sullivan writes, “Let’s be clear.  Yahoo’s alleged drop in market share has nothing to do with the status of its ad platform.  If that were the case – if how well ads are targeted had an impact on consumer-traffic – arguably Microsoft should be stomping all over Google and Yahoo.  It is not.”

Yahoo’s got a chance, then, depending on how well the judge or jury understands the search engine and ad marketing industries.