On 3 April 2012, the Federal Court of Australia held that Google Inc. was in breach of section 52 of the Trade Practices Act 19471 (TPA) by way of publishing misleading advertisements of third parties which were displayed as 'sponsored links' on the Google Australia website.

Sponsored links are advertisements created by, or at the direction of advertisers who are willing to pay Google for text which directs user traffic to their web pages. The principal issue on appeal was whether Google had engaged in misleading and deceptive conduct as a result of displaying an advertiser's web address, or URL, in the sponsored link which appeared in response to an enquiry made of the Google search engine by search terms which consisted of or included the name of a competitor of the advertiser.

The Australian Competition and Consumer Commission ("ACCC") argued that such conduct amounted to a misrepresentation of a commercial affiliation between the advertiser and its competitor by displaying the advertiser's web address in collocation with information concerning the competitor.

Google's primary position was that Google was not responsible for the misleading effect of the displayed response because it was apparent to the user that Google was no more than a conduit for the advertiser.

Sponsored links and the Google AdWords program

Google's process of producing sponsored links on a web page is not determined in the same way as organic search results (information displayed free of charge). Rather, the display and location of a sponsored link is determined through Google's AdWords program. Google has hundreds of thousands of AdWords customers worldwide.

When a user enters a query into the Google search engine, an "auction" is triggered that determines which sponsored links to show, in which order to show them and how much Google charges the advertisers whose advertisements are displayed when the user clicks on the advertisement.

Participation in the AdWords program is subject to the agreement of the advertisers to be bound by Google's AdWords Program Terms. The most important terms for present purposes are:

  • The customer is solely responsible for all advertising targeting options and keywords and all advertising content, advertising information, and advertising URLs.
  • The advertiser's advertisements and keywords must "directly relate" to the content on the landing page for the customer's advertisement.

An example of one of the sponsored links in contention featured the words "Harvey World Travel" or "Harvey World". However, the link was that of STA Travel, a significant competitor of Harvey World Travel in the travel industry:

Harvey World Travel

www.statravel.com.au Unbeatable deals on flights, Hotels & Pkg's Search, Book & Pack Now!

Consequently, the STA sponsored link appeared following a Google search for Harvey World Travel, and clicking on the link took consumers directly to the STA website, rather than to the Harvey World Travel website.

First instance

At first instance2, Justice Nicholas held that in four instances relied on by the ACCC, an advertiser had engaged in misleading and deceptive conduct by falsely representing that there was a commercial association or affiliation with its competitor, and that information regarding the competitor could be found by clicking on to what was, in fact, the advertiser's web address.

His Honour held, however, that Google did not make the representations contained in these sponsored links. His Honour further held that Google did not endorse or adopt the advertisement but did no more than represent that the advertisements were advertisements.

The trial judge concluded that an ordinary and reasonable user would understand that Google was a commercial enterprise separate and distinct from the advertisers who make use of it, and that the term "sponsored" conveys that the links are paid for by the sponsors. An ordinary and reasonable reader would, therefore, distinguish between organic search results and sponsored links.

His Honour reasoned that Google had merely communicated what the advertisers' represented without adopting or endorsing it. While advertisers may have engaged in misleading and deceptive conduct through representing a non-existent affiliation or association with a competitor, Google itself had not made the misleading representations conveyed by the advertisements.

Arguments in the Full Federal Court

On appeal, the ACCC argued that where a publisher communicates or "passes on" advertising material the publisher may be said to have made the representation concurrently with the advertiser unless the surrounding circumstances displace that conclusion. Alternatively, if the publisher does not merely "pass on" the advertisement, but engages in acts to prepare, create or approve the advertisement, then the publisher makes the relevant representations.

The ACCC pointed to three facts to support the contention that Google took an active role in the preparation, dissemination and publication of advertisements with the consequence that Google made the relevant representations in the case at hand. First, Google tightly controlled the content of results generated by a search as well as the way in which these results were presented; secondly, Google's AdWords program permitted advertisers to target their advertisements; and thirdly, Google's internal processes closely supervised the available keywords for an advertisement.

Google argued that its position was analogous to that of the owner of a billboard or a telephone network in that advertisements carried on in such media will readily be understood as a statement by the advertiser. Google also contended that it was entitled to the benefit of the 'publishers defence' provided by s85(3) of the TPA.3

Findings in the Full Federal Court

The Court held that users of Google's search engine presented with a sponsored link in response to a search query would not regard the sponsored link displayed by Google as conveying the message that the sponsored link was a statement by an advertiser which Google was merely passing on. Rather, what appeared on Google's webpage was Google's response to the user's query. That it happened to headline a keyword chosen by the advertiser did not make it any the less Google's response. In those circumstances, Google's conduct could not fairly be described as merely passing on the statements of the advertiser for what they were worth.

The Court reasoned that the user is told that the advertiser's message is an answer to the user's query about the subject matter of the keyword. The conduct was said to be Google's because Google was responding to the query and providing the URL. It was not merely passing on the URL as a statement made by the advertiser. Rather, Google was informing the user, by its response to the query, that the content of the sponsored link was responsive to the user's query:4

Google created the message which it presents. Google's search engine calls up and displays the response to the user's enquiry. It is Google's technology which creates that which is displayed. Google did not merely repeat or pass on a statement by the advertiser: what is displayed in response to the user's search query is not the equivalent of Google saying here is a statement by an advertiser which is passed on for what it is worth.

An ordinary and reasonable user would therefore conclude that it was Google who was displaying the sponsored link in collocation with the sponsor's URL in response to the user's search. Even if all of the circumstances would not be apparent to ordinary and reasonable users, so that Google could not be "seen" by them to be more than a mere conduit, the circumstances showed that Google was, in fact, much more than a mere conduit.

Publishers defence

At first instance the trial judge held that even if he had concluded that Google made the representations, he would not have held that a defence under s85(3) was available to Google. Google bore the onus of establishing that it had received the advertisement for publication in the ordinary course of business and did not know and had no reason to suspect that its publication would amount to a contravention of s52 of the Act. The primary judge held that Google had not discharged its burden of proof in this regard. At paragraph 242, his Honour stated:

[It] has not been established to my satisfaction that Google did not have any reason to suspect that the publication of the Harvey World Travel advertisements was likely to mislead or deceive. Ms Wood [a Google employee] knew that Harvey World Travel was a well known competitor of STA Travel and it is very likely that she knew that these names were within the AdGroup which she created. A reasonable person in her position would have appreciated that the use of a well known competitor's name such as "Harvey World Travel" as a keyword triggering an advertisement for STA Travel with a matching headline gave rise to a significant risk that people searching for "Harvey World Travel" would be lead [sic] to believe that there was, contrary to the fact, an association of the kind I previously identified.

On appeal, the Court held that the role of "creative maximisers" and other Google personnel who liaise with customers (a feature of the AdWords program) may have been relevant to the defence under s85(3), but that the Court did not take it into account in reaching the conclusion that the conduct in question was Google's conduct as a principal, and not as a mere intermediary, which was misleading.

Conclusion and orders

The Court concluded that the trial judge erred in failing to conclude that Google engaged in misleading and deceptive conduct.

The Court ordered that declarations be made that Google engaged in conduct that was misleading and deceptive or likely to mislead or deceive in contravention of section 52 of the TPA. The Court also ordered that Google must establish and implement a compliance program, and pay the ACCC's costs of the appeal.

Google has sought special leave to appeal to the High Court of Australia.