13 Oct 2011

Google gets results in ad words case

by Richard Hoad, Melanie Keith

If the keyword purchased is a trade mark owned by a competitor, then the advertiser may well face legal action by the ACCC and a claim for damages or an account of profits by the trade mark owner.

In the recent decision Australian Competition and Consumer Commission v Trading Post Australia Pty Ltd [2011] FCA 1086, the Federal Court found that Trading Post engaged in misleading and deceptive conduct by advertising on Google using keywords not associated with its business. However, the Federal Court dismissed the ACCC's claims that Google should also be held responsible for this aspect of Trading Post’s advertising strategy.

Advertising on Google

When a user enters a search term on the Google search engine and clicks on the search button, Google returns two types of results: "organic" (also known as "free") listings; and "sponsored links". A sponsored link is basically a form of advertisement for which a fee is paid to Google. Sponsored links are labelled "Sponsored Links" and appear either above the organic search results (in a shaded box) or to the right hand side of the organic search results.

Claims against Trading Post

Trading Post had purchased the AdWords “Kloster Ford” and “Charlestown Toyota” from Google. This meant that when “Kloster Ford” or “Charlestown Toyota” were entered as search terms on the Google search engine, the search results would include sponsored links by Trading Post with the headline “Kloster Ford” or “Charlestown Toyota”. When the user clicked on those headlines, the user was taken to Trading Post’s website.

The ACCC alleged that this contravened sections 52 and 53 of the Trade Practices Act 1974 (Cth) (TPA) (now sections 18 and 29 of the Australian Consumer Law) because the use of keywords in this manner implied, contrary to the fact, that there was an association between the respective car dealers and Trading Post.

Justice Nicholas of the Federal Court found that the Ford dealership trading as Kloster Ford did not sell products via Trading Post and did not have any other connection with Trading Post. The Court held that the ordinary and reasonable user with some basic knowledge of the Google search engine and with some degree of familiarity of the Kloster Ford and Trading Post businesses would, on seeing the Kloster Ford advertisement, be misled to believe:

  • there was an association or affiliation between Kloster Ford and Trading Post; and
  • information regarding Kloster Ford or Kloster Ford car sales could be found at the Trading Post site.

As a result, the Court declared that Trading Post had contravened sections 52 and 53 of the TPA by publishing the Kloster Ford advertisement. The case relating to the Charlestown Toyota advertisement failed due to evidentiary deficiencies.

Claims against Google

The ACCC alleged that Google had engaged in misleading or deceptive conduct in:

  • failing to adequately distinguish between organic results and sponsored links. In particular, the ACCC alleged that the yellow shading and the expression "sponsored links" are insufficient to counteract the misleading impression otherwise created by the running together of the sponsored links and the organic search results; and
  • making the representations contained in the Kloster Ford and Charlestown Toyota advertisements. (The claims in relation to the Charlestown Toyota advertisement failed for the same evidentiary reasons as those claims failed against Trading Post.)

Justice Nicholas dismissed all of the ACCC's claims against Google.

The Court was not satisfied that Google contravened the TPA by failing to sufficiently distinguish sponsored links from organic search results on its search results pages. In reaching this decision, his Honour noted that most users of the Google search engine would understand that Google is a commercial enterprise and that, since Google does not charge users to use its search engine, Google would generate revenue by causing advertisements to appear on its search results pages. Justice Nicholas did not accept the ACCC's argument that users would not appreciate that sponsored links were advertisements, concluding that the word "sponsored" is likely to convey to users that the links are in fact paid for.

The ACCC was also unable to persuade his Honour that Google contravened section 52 of the TPA (Cth) by making the representations contained in the Kloster Ford advertisement. His Honour rejected the ACCC's argument that as a result of Google's use of "keyword insertion" and its significant input into advertisements, Google, as well as Trading Post, made the representations. His Honour noted that, while the technology employed in on-line advertising may be different to the technology associated with the publication of print or television advertisements, it is nevertheless clear that the publisher or broadcaster always provides at least some of the technical facilities that permit an advertisement to be seen or heard. It does not follow that these publishers or broadcasters have endorsed any information conveyed by the advertisement. Justice Nicholas therefore concluded that Google was "merely communicating" the representations without approving or endorsing any of them.

Lessons learned

While the ACCC may lodge an appeal, the decision of Justice Nicholas is a significant victory for Google.

The important lesson from this case is really for purchasers of keywords such as Google AdWords (in other words, the actual advertisers). If the keyword purchased is a trade mark owned by a competitor, then the advertiser may well face legal action by the ACCC and a claim for damages or an account of profits by the trade mark owner.

STOP PRESS: The ACCC has just announced it will appeal this decision. We'll be following this and report any developments.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.