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LOS ANGELES-Yahoo! Inc. has agreed to settlement talks in a class action filed by customers who say the search engine placed their premium-priced advertisements within spyware and other questionable software programs. The talks come soon after Yahoo filed a motion to disqualify one of the plaintiffs’ lawyers, Ben Edelman, a spyware expert at Harvard University. Michael Boni, a partner at Philadelphia-based Kohn Swift & Graf, a plaintiffs’ lawyer in the case, said both sides are “in the thick of settlement negotiations,” but declined to discuss specifics. “We’re asking for reimbursement of money we believe the class members overpaid for the advertising services,” he said, noting the class could include thousands of companies. Questionable Web sites? In the suit filed last year, four of Yahoo’s business customers claim that the search engine placed their ads on questionable Web sites and within spyware programs that send unwanted ads to consumers through pop-ups. Draucker Development and True Communications Inc. v. Yahoo! Inc., No. CV 06-02737 (C.D. Calif.). The plaintiffs say the spyware programs allow Yahoo to benefit financially because it charges customers for higher-priced advertisements designed to target specific consumers. The plaintiffs cite suits filed by the New York Attorney General’s Office revealing that Yahoo had placed ads within the software programs of two spyware companies, Intermix Media and DirectRevenue. Intermix settled the case; DirectRevenue has contested the claims but agreed last month to pay $1.5 million to settle similar charges brought by the Federal Trade Commission. On Jan. 3, Yahoo filed a motion to dismiss Edelman from the spyware case and from a separate suit in which plaintiffs are alleging click fraud. Checkmate Strategic Group Inc. v. Yahoo! Inc., No. CV 05-04588 (C.D. Calif.). In the click-fraud case, Yahoo agreed last June to a preliminary settlement. Several plaintiffs objected to that settlement, including some who filed the spyware case. The plaintiff’s lawyer in the case, Brian Kabateck, a partner at Los Angeles-based Kabateck Brown Kellner, said that Yahoo’s motion is a “nonissue” because Edelman, who was a consultant, is no longer part of the case. According to court papers, Yahoo hired Edelman in May 2003 as a consultant assigned to assess the impact of certain software distributed by some Internet advertising companies. Much of that confidential information is “substantially related” to the spyware suit, which involves the same software, court papers say. Calls to Yahoo and its lawyer, Dennis Wilson, a partner at Beverly Hills, Calif.-based Keats McFarland & Wilson, were not returned. Boni called the Edelman disqualification motion a “substantial shot across the bow” that had nothing to do with recent settlement discussions. “I can categorically deny that Ben is in any conflict-of-interest relationship or situation,” he said. “We’re very confident that if the motion were brought to court, the motion would be denied.”

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