Under the terms of the settlement Yahoo will pay roughly $5m to offset Checkmate's legal fees, and has promised to look at its advertising terms and conditions.
Click fraud involves individuals using scripts or manually clicking on pay-per-click advertisements for financial gain.
A company could click on advertisements to deplete its competitor's marketing budget, for instance, and a website operator could be tempted to commit click fraud to increase revenues.
Yahoo currently offers a 60-day review period in which advertisers can challenge clicks.
The search firm will now offer advertisers a one-time extension to the claim period, allowing them to request a review of clicks dating back to January 2004. They will receive full credit for clicks that have been incorrectly invoiced.
Yahoo also promised to appoint a traffic quality advocate, provide access to its Clickthrough Protection system and set up a Traffic Quality Resource Centre where advertisers are offered additional information.
Click fraud is a controversial topic in the online advertising community. Publishers such as Google and Yahoo benefit from the scam through the commissions charged for the advertising plans.
Critics have suggested that this gives the search firms an incentive to turn a blind eye to the practice.
Google won a lawsuit in May last year against the Auction Experts website, which the search company alleged had raked in $50,000 by hiring individuals to click on advertisements on its website. Google was awarded $75,000 in damages.
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