Jun.03, 2010, 5:00PM EST

Click fraud has been a scourge since the dawn of online advertising. Dishonest website operators have pumped up ad revenues by generating online traffic when there's no actual interested buyer for the product or service being advertised. There have been plenty of variations of that theme over the years. Big ad network operators such as Google (GOOG) and Microsoft (MSFT) have developed fraud detection systems to weed out useless clicks, to maintain the confidence of advertisers in their systems. Yet online con games keep growing more sophisticated.

Which leads to the latest trend in online advertising fraud, dubbed "click laundering" by Microsoft. On May 17, it filed a lawsuit in U.S. District Court accusing science news site RedOrbit of generating invalid clicks from bogus third-party sites it controlled. In early 2009, Microsoft alleges, RedOrbit founder Eric Ralls used technological trickery to make false clicks seem like they were from his site and were legitimate. (Microsoft likens it to money laundering in which financial transactions turn cash proceeds from a crime into legitimate funds.)

According to court documents, in late 2008 RedOrbit had been approved as a member of Microsoft's adCenter network, which provides pay-per-click ad services. Microsoft says Ralls manipulated tiny bits of Microsoft-generated software code so that ads appearing on other sites he controlled were clicked on and wrongly credited to Red-Orbit. Microsoft also alleges that Ralls distributed software (or "malware," as in malicious software) that infected consumers' PCs and instructed them to repeatedly—and invisibly—click on ads hosted on those other sites. As a result, click traffic surged at RedOrbit.

Ralls denies all charges. In a statement, he says RedOrbit gave all of its server logs to Microsoft when the latter became concerned about a sudden spike in traffic in January 2009, and later stopped using adCenter. While Microsoft pegs the fraud at $250,000, Ralls says RedOrbit never received any money from Microsoft. "RedOrbit does not, nor has it ever, engaged, assisted in, or condoned click fraud," he writes.

Big ad networks will face challenges ensuring the legitimacy of their traffic to advertisers if click laundering becomes a pervasive trend. Should well-known websites start tapping into fraudulent clickstreams without raising suspicion, says Richard Boscovich, a senior attorney at Microsoft, "We're facing a much bigger problem."