Microsoft on Monday filed a civil lawsuit to stop a click fraud scheme from being perpetrated on its advertising network.

The suit, filed in U.S. District Court in Seattle, alleges that Eric Lam, his mother Melanie Suen and brother Gordon Lam, all residents of Vancouver, British Columbia, engaged in a ploy that generated invalid clicks on links for online advertisements. Microsoft is seeking $750,000 in damages.

The click fraud scheme, in which someone clicks on ads by imitating a legitimate web user, disrupted competitors' advertising campaigns and increased traffic to their own ads. In addition, the scam caused a "substantial" loss of revenue for Microsoft, the suit claims.

Microsoft's advertising network, called adCenter, uses the pay-per-click advertising model, which also is used by all other major search engines. In this model, advertisers bid on keywords so that their website will appear at the top of the “sponsored results” for that term. The winning bidders agree to pay Microsoft a certain amount each time a potential customer clicks on their ad.

By using this method, a fraudster can exhaust a competitor's advertising budget by clicking on their ads many times over.

The suit contends that the defendants searched for keywords related to auto insurance, such as “car insurance,” and “cheap car insurance,” and then clicked the top sponsored search result thousands of times, resulting in a charge-per-click for the advertiser. In an effort to conceal their IP addresses, the defendants used proxy server networks when conducting the click fraud. In addition, the defendants targeted advertisers who bought search terms related to the online video game World of Warcraft.

“The result is that while competitors' advertising budgets were exhausted or sponsors' site performance was decreased as a result of the click fraud, the defendants' advertising budgets were not impacted, causing Lam's sponsored sites to assume higher rankings and increased traffic, leading to increased revenue for Lam and the other defendants,” the complaint states.

Efforts to contact Eric Lam by phone and email Tuesday were unsuccessful. In addition, a person who answered the phone at a number believed to be for Gordon Lam hung up when contacted by SCMagazineUS.com Tuesday.

Through its investigation, Microsoft determined that Suen and the Lams owned companies in Wilmington, Del. called Super Continental US and UMGE, which were in charge of sales and marketing for websites related to World of Warcraft and auto insurance, according to the complaint.

As a result of this fraud, Microsoft had to pay back $1.5 million to various auto insurance and World of Warcraft advertisers, the complaint states.

The incidence of click fraud has decreased from 17.1 percent during the fourth quarter of 2008 to 13.8 percent in the first quarter of 2009, according to online traffic auditing vendor Click Forensics, which has monitored the problem of click fraud for the past four years. But the study found that during the first quarter of 2009, advertising networks were “especially vulnerable” to click fraud attacks carried out with the help of malicious scripted programs.

“The lessons here are pretty clear," wrote Steve O'Brien, president of sales and marketing at Click Forensics, in a recent blog post addressing Microsoft's civil case. "Click fraud is still a problem and solving it requires constant vigilance. The online advertising community needs to work together -- search engines, ad networks,advertisers, and third-party auditors -- to protect ourselves from this threat.”

David Perry, global director of education at security vendor Trend Micro, told SCMagazineUS.com on Tuesday that even though the amount of click fraud is falling, with the amount of fraud still occurring, online advertising is becoming almost too disreputable for businesses to use.