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SearchViews ran a good 2-part series this week on spotting click fraud and dealing with its impact on your ad campaigns:

Part 1:

Quote:  Click Fraud 101 - Part 1: Definitions and Culprits

Many of our readers are curious about click fraud; it's often in the news, and the term itself carries an aura that suggests there's a darker, more mysterious side to our industry. Dark, maybe - mysterious, nah. While click fraud is definitely a problem, it's not something that needs (or deserves) to be shrouded in inscrutability. We hope this primer will help take the edge off, and give you a basic idea how to keep track of and minimize the problems associated with click fraud...

full article: http://searchviews.com/archives/2006/05/..._101_1.php

Quote: Click Fraud 101 - Part 2: Diagnosis, Defense and the SEM's Outlook

How to spot a problem
Keeping an eye on click fraud is as simple (and boring) as diligently keeping track of your traffic. The problem generally graduates from a nuisance to a financial burden only with a significant number of clicks, which is lucky, since massive click activity has a hard time flying under the radar if you know what to look for...

full article: http://searchviews.com/archives/2006/05/...ud_101.php

A related article on methods to fight click fraud.  Article covers: What is click fraud?, Types of click fraud, Identifying click fraud, How to protect yourself, Is anybody doing anything?, About paid search…

Quote:An online retailer selling consumer electronics noticed something interesting about his search campaign one Monday morning. In the last month, his top earning terms like "iPod Nano" have gone from an average $2.00 per click to well above $5.00. His conversion rates, usually in the 1.5 to 2.5 percent range have dropped below .05 percent. Search activity for less than popular targeted terms like "iPood Nannu" have gone from 12 to 15 searches a month to almost 500, and those terms have skyrocketed from five to 10 cents per click to almost $3.00 per click with almost no increase in sales over the previous 30 days.

What happened? The most likely explanation is that a competitor started clicking on our online retailer's sponsored search ads over and over and over in order to drive his costs up, drain the amount of money he can spend on search, and open up those key search terms for his own business...

full article: http://www.imediaconnection.com/content/10141.asp