05 Apr 2012

Consumer watchdog nabs Google for misleading conduct

by Richard Hoad, Melanie Keith

In a significant victory for the ACCC, the Full Federal Court has found that Google engaged in misleading or deceptive conduct by publishing advertisers' misleading and deceptive advertisements as sponsored links on results generated by its search engine, overturning the decision of Justice Nicholas at trial.

Google's win at trial

The two principal issues against Google at trial were:

  • Did Google engage in misleading or deceptive conduct in failing to adequately distinguish between "organic" (also known as "free" listings) and "sponsored" search results? A sponsored link is effectively a paid advertisement generated on a Google search by the advertiser purchasing "Google AdWords" for the terms searched. At the time the proceedings commenced, the sponsored search results were labelled "Sponsored Links" on the Google search results page. Today, the sponsored advertisements appear as "Ads".
  • Was Google liable for misleading or deceptive conduct engaged in by Google AdWords customers who falsely represented that they (the advertisers) had a relationship with a competitor? For example, a search for "Harvey World Travel" on Google would reveal to the user a sponsored link to the website of STA Travel, a competitor of Harvey World Travel. STA Travel had purchased "Harvey World Travel" and "Harvey World" as Google AdWords.

The ACCC lost the case against Google on both these issues. In relation to the second issue, the trial judge found that Google did not make the representations contained in the sponsored links. Justice Nicholas reached the conclusion that Google was "merely communicating" the representations in question, without approving or endorsing any of them.

He noted that ordinary and reasonable users of the Google search engine would understand that the advertiser determines the content of an advertisement, and "the message being conveyed to them by the publication of such an advertisement was one from the advertiser rather than the publisher [ie. Google]".

Why Google lost on appeal

The ACCC appealed to the Full Federal Court in relation to the second issue.

The ACCC argued that the primary judge failed to have regard to the significant fact that Google's keyword insertion facility caused the sponsored link to appear on its search results page. The ACCC submitted that Google itself made the misleading representations because Google took an active role in the preparation, dissemination and publication of the sponsored links. In support of this argument, the ACCC pointed to the following factors:

  • Google tightly controls the content of results generated by a search as well as the way in which those results are presented;
  • Google's AdWords program permits advertisers to target their advertisements; and
  • Google's internal processes closely supervise the available keywords for an advertisement.

In its defence, Google argued that it merely "passed on" the sponsored links as a statement made by the relevant advertiser for what the statement was worth. Google submitted that its position is analogous to the owner of a billboard or the publisher of a newspaper in that advertisements carried in such media are understood as a statement by the advertiser and not the publisher.

The Full Court found in favour of the ACCC and held that Google, as well as the advertisers, made the misleading representations. Critical to the Court's conclusion was the fact that sponsored links are displayed as Google's response to a user's insertion of a search term into Google's search engine. Although the keywords which trigger the sponsored links are selected by the advertiser, the Court held that the representation is nevertheless still made by Google because Google is the one that triggers the sponsored link through its search algorithms.

The Court found there was no analogy between the circumstances in which sponsored links are displayed on Google's search engine and the case of a billboard owner or a publisher of a newspaper. The latter, the Court said, simply display a third party’s advertisement. In the present case, it is Google's technology which creates what is displayed. Google does more than merely pass on a statement by the advertiser.

The Court rejected Google's argument that its AdWords Program Terms provide that the advertiser is solely responsible for all keywords used. The Court held that it does not follow from this that the conduct in question is solely that of the advertiser.

The Court ordered Google to implement a compliance program and pay the ACCC’s legal costs.

Lessons learned

It can be expected that Google will seek special leave to appeal to the High Court. However, based on the Full Court decision, for the moment it is clear that Google and other search engine providers can be held accountable for misleading and deceptive advertisements displayed on their search results pages. While Google and other search engine operators may seek to impose stricter obligations on their clients through their Terms of Use, based on this decision that may not be sufficient to protect them from legal action.

When read together with an earlier decision of the Federal Court in relation to third party postings on corporate Facebook sites and Twitter accounts, the broader message for business is that there are risks involved in engaging with consumers online. While customer feedback has quickly become an essential part of online commerce and corporate PR strategies, there are risks involved in allowing customers to make statements on websites and other online forums. This includes the risk that the businesses will face legal action for misleading or deceptive conduct for allowing misleading statements made by a customer to be published.


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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.