17 May 2012 Google AdWords on Trial: ACCC establishes misleading or deceptive conduct


In Brief

In what is likely to be heralded as a landmark decision for Australia's consumer watchdog, the Federal Court of Australia has found that using Google AdWords to trade on a competitor's business or reputation is not only a breach by the advertiser of the Trade Practices Act 1974 (Cth) (TPA) (now the Competition and Consumer Act 2010 (Cth)), but also a breach by the search engine providing the advertising service and displaying the contravening words in its search results.

We take a look at the primary and appeal decisions and give some guidance on what businesses might expect next.

Primary proceedings

Google's AdWords program provides a paid advertising service that enables advertisers to target specific users on the basis of their search term queries.  These paid links, referred to as 'sponsored links'1  appear either above or alongside organic search results.

In 2007, the ACCC brought an action against the Trading Post and Google for misleading or deceptive conduct and false representations under the Trade Practices Act in relation to specific instances where the Trading Post used the names of competitors, specifically the car dealership 'Kloster Ford', in its sponsored links on the Google search engine.

The Federal Court of Australia handed down its judgment in 2011, finding that the Trading Post made various representations which were misleading or deceptive, or likely to mislead or deceive, including that:

  • there was an association or affiliation between Trading Post and Kloster Ford when there was not;
  • information regarding Kloster Ford could be found at the website when it could not; and
  • information regarding Kloster Ford's car sales could be found at the website at when it could not.

In its case against Google, the ACCC alleged that the features that were said to distinguish organic search results from sponsored links for the consumer were deficient, in particular, the appearance of organic search results and sponsored links on Google’s web pages were fundamentally the same.  The ACCC also argued that Google had made the representations as to the car dealership and also to four other instances of sponsored links that returned to the user links of competitors Harvey World Travel, Honda Australia, Alpha Dog Training and Just 4x4's Magazine.

However, the Court was not satisfied that Google contravened the TPA by failing to sufficiently distinguish the sponsored links from organic search results.  The Court was of the opinion that the ordinary and reasonable user would be aware that Google was a commercial entity and that the sponsored links were advertisements.

Further, Google was found not to have contravened section 52 of the TPA by making the representations.  Whilst the technology employed by advertisers online may be different to that of a publisher of a newspaper, it did not agree that Google's publication online of the advertisement resulted in any endorsement of the information conveyed by that advertisement.  Rather, Google was a mere conduit of the information.

Accordingly, the ACCC's claims against Google were dismissed.

1Since this decision, Google has replaced the phrase 'sponsored links' with the phrase 'Why these Ads?' which when clicked by the user provides further information as to how the links were generated and, by signing into the user's Google Account, the ability to opt out.

ACCC's basis for Appeal

The ACCC appealed the findings made in favour of Google - specifically citing the four instances of alleged misleading conduct regarding Harvey World Travel, Honda Australia, Alpha Dog Training and Just 4x4's Magazine.

According to the ACCC, Google was instrumental in communicating the advertising material to the search engine user.  Accordingly, Google engaged in misleading conduct by taking an active role in the preparation, dissemination and publication of the advertisements, rather than just 'passing it on for what it was worth'.

Google argued that its actions were similar to the owner of a billboard or a telephone network in that advertisements of this nature are readily understood by consumers as being representations of the advertiser and not the publisher.  Further, Google argued that the ordinary and reasonable search engine user would recognise that sponsored links were advertisements made by the advertiser only.

Appeal Court's reasons

The Full Court of the Federal Court rejected Google's claims. The very fact that the sponsored link is displayed on the screen in response to the user's search query suggests to the ordinary and reasonable user that it is Google who was displaying that sponsored link and not just the advertisers.  For example, when a user entered the phrase "Harvey World Travel" the results returned a link to STA Travel which featured as one of the first links a user would see.  The results returned by Google's search engine misrepresented a connection between the search term identifying a competitor and the URL of the advertiser.  Simply put, the enquiry was made of Google and it was Google's response which was misleading.

A critical part of the process was the triggering of the link between the search terms and the results by Google's algorithms.  This was further evidence that Google's conduct was as principal, and not merely as a conduit of the advertisements.  It was Google's conduct in response to the user's interaction with Google's search engine that was misleading.  As such, any analogy between Google and that of a billboard owner who simply displays an advertisement of another was not available.

Even though Google's AdWords Terms stated that the advertiser is responsible for all advertising and must choose words that "directly relate" to the content on the landing page of the advertisement, this was not sufficient to protect Google.  The conduct was clearly not solely that of the advertiser, but also of Google.

Nothing in this later decision affects or alters the liability of the advertiser for using the names or brands of a competitor as key words in an AdWords program.

Ramifications of the appeal decision

This decision against Google has significant implications.  Currently, Google's search engine dominates approximately 82 per cent of the market share of search engines in the world.  Coupled with the fact that around 97 per cent of Google's revenue is made through its AdWords program, this decision will change not only the way Google operates its AdWords business in Australia, but also around the world.

A similar case was recently heard on appeal in the United States.  Rosetta Stone, a software manufacturer, alleged trade mark infringement by Google through the AdWords program.  The Court held that summary judgment dismissing the claim, in favour of Google, was unfounded.  In particular, there was not sufficient evidence available to the judge in the first instance to determine whether or not Google intended to create confusion, whether there was actual confusion or whether consumer sophistication was of a level to negate any alleged confusion.  The matter will now proceed with a full trial on these issues.

Implications for businesses

Whilst it is unknown as yet whether Google will seek leave to appeal the decision, in the meantime businesses can expect Google to respond with tougher requirements on those wishing to use its AdWords service.  All businesses need to be aware of their own liability if using competitors' names in their advertisements using Google's AdWords program. 

To minimise risk of liability, businesses should only use the AdWords or any other search engine advertising service in relation to words or phrases that are specific or related to the business and/or its activities.
Similarly, to ensure that your business minimises the risk of infringement:

  • business and product names should be protected by registered trade marks; and
  • undertake a review of sponsored links intermittently to ensure abuse is caught before damage is caused to the business or its reputation.

For further information please contact Swaab Attorneys.

Co-authored by M Hall.

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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