On Thursday, 22 September 2011, Justice Nicholas, in the Federal Court of Australia, found that Google was not liable for misleading or deceptive conduct in relation to Google’s publication of certain sponsored links on its website.

The case, brought by the Australian Competition and Consumer Commission (“ACCC”) in 2007, follows a trend of cases against Google and other search engine operators around the world testing the extent to which Google (and others) are liable for allowing the publication of infringing or misleading advertisements on their websites.  While the majority of the cases brought to date have been based on trade mark infringement claims, the ACCC’s case against Google was brought under the Australian consumer protection legislation.

The decision clarifies that the scope of a search engine operator’s liability will be limited in circumstances where the operator is merely a publisher of the advertisement.  Absent evidence of the clear adoption of the advertising or evidence of wrongdoing by or recklessness on behalf of a search engine operator, the courts will be unwilling to impose liability.

What you need to know

  1. Using a competitor’s business or product name in an advertisement is likely to amount to misleading or deceptive conduct on the part of the advertiser (in some circumstances, it could also amount to an infringement of the competitor’s intellectual property rights).
  2. Mere publication of advertisements that contain representations that are misleading or deceptive is unlikely to attract liability on the part of the publisher unless the publisher is shown to have endorsed or adopted the misrepresentations made in the advertisement. This is because the publisher does not make those representations; the advertiser does.
  3. Where liability for publication of a misleading or deceptive advertisement is found, the publisher may be able to avoid liability if it is able to show that it received the advertisement in the ordinary course of business and it did not now and had no reason to suspect that its publication would amount to misleading or deceptive conduct.

The facts

Google is a provider of a popular search engine which allows users to locate relevant information on the internet.  There are two types of results generated by using Google’s service: “organic” search results ranked by Google according to their relevance to the user’s query, and “sponsored links” which are paid advertisements.  Sponsored links typically appear above or to the right of the organic search results.  Each sponsored link contains a headline which is a link that will ordinarily take a user to a website of the advertiser.  Sometimes, the headline consists of keywords selected by the advertiser which, as was shown in the case of advertisements discussed in the judgment, may be a business or product name of the advertiser’s competitor.

The ACCC alleged that, by failing to adequately distinguish between sponsored links and organic search results and by failing to identify sponsored links as advertisements, Google engaged in misleading or deceptive conduct or conduct likely to mislead or deceive in breach of section 52 of the Trade Practices Act 1974 (Cth) (“TPA”) (now superseded by the Competition and Consumer Act 2010 which contains equivalent provisions).  The ACCC claimed that users of Google’s search engine would not know that sponsored links were paid advertisements and that their position on the results page was not dictated by relevance.  Google denied the claim.

Further, the ACCC alleged that the use of a competitor’s business or product name as a keyword in a headline of an advertiser’s sponsored link implies, contrary to the fact, that there is an association between the competitor, its business or products and the advertiser.  In the ACCC’s view, the use of keywords in this manner amounted to misleading or deceptive conduct or conduct likely to mislead or deceive.  The ACCC also alleged that by publishing advertisements that contain competitors’ keywords, Google engaged in conduct that is misleading or deceptive.  The ACCC’s claim was based on eleven separate advertisements.

In its defence, Google claimed that:

  1. it had not been shown that the advertisements in question conveyed any representations that were misleading or deceptive;
  2. if the advertisements were shown to contain misleading or deceptive representations, it was the advertiser and not Google that made the representations; and
  3. if it was shown that, by publishing a particular advertisement, Google made any representation that is misleading or deceptive, then Google should be able to rely on the defence under section 85(3) of the TPA.  The defence is available to a publisher of misleading or deceptive advertisements where the publisher does not know, and had no reason to suspect, that publication of the advertisement was misleading or deceptive or likely to mislead or deceive.

The decision

Sponsored links versus organic search results

Following a very detailed analysis of the features and layout of Google’s webpage, his Honour concluded that an ordinary consumer would be able to sufficiently distinguish between sponsored links and organic search results.

The ACCC argued that the placing of sponsored links in blue or yellow coloured boxes (as Google had done) served to attract the user’s attention to them but failed to inform the user that the links were paid advertisements.  Further, in the ACCC’s view, the use of the words “sponsored links” (which the ACCC viewed as ambiguous) did little more to alert users to the true status of the advertisements.  Both of these arguments were rejected.

Lastly, the ACCC submitted that at least a portion of consumers would be first timer users of Google’s service and as such they were unlikely to understand the difference between sponsored links and organic search results.  While his Honour agreed that first time users may “be confused by the initial experience”, he ultimately rejected the ACCC’s submission on the basis that:

  1. there was no evidence that first time users constituted a significant portion of the relevant section of the public; and
  2. any confusion would likely be very short-lived.

His Honour found that “any confusion arising out of first use is of a temporary and commercially irrelevant kind that may be disregarded for the purpose of determining whether there has been any misleading or deceptive conduct” (at [168]).

The above findings give rise to some interesting questions.  Given whether a representation is misleading or deceptive has to be assessed at the time the representation is made, the fact that every user of the Google search engine was at one point a first time user ,and therefore would comprise a significant group of users over time, was not relevant.The finding as to misleading or deceptive conduct would be no doubt different if a search engine was new to the market at the relevant time and the proportion of first time users constituted a large number of the relevant section of the public. 

Google’s liability for representations made in sponsored links through use of competitors’ keywords

Justice Nicholas found that the use of a competitor’s business or product name in a sponsored link by an advertiser amounted to conduct that was misleading or deceptive.  While his Honour found that an advertiser would be liable for such conduct, he was not prepared to extend that liability to Google.  In his Honour’s opinion, it would have been clear to an ordinary and reasonable consumer that:

  1. each sponsored link was a paid advertisement of an advertiser;
  2. Google simply made available to the advertiser a facility for choosing a keyword for its sponsored link and provided the advertiser with a medium on which the link could be published; and
  3. it was the advertiser not Google that chose to use the facility and produce a headline containing a competitor’s business or product name.

Google had neither endorsed nor adopted the representations made in the sponsored links by advertisers.  It was a mere conduit for communicating the advertisements.  It was therefore not liable for their content.

The publisher’s defence

While not necessary in light of His Honour’s earlier findings, Justice Nicholas nonetheless thought it desirable to discuss Google’s defence under section 85(3) of the TPA (the equivalent of which is now found in section 251 of Schedule 2 to the Competition and Consumer Act 2010 (Cth)).

Pursuant to section 85(3), a publisher of an advertisement that contains misrepresentations is not liable for its publication provided that it had received the advertisement in the ordinary course of business and it did not know and had no reason to suspect that the publication of the advertisement would constitute misleading or deceptive conduct. There was some argument about whether in order to rely on the defence, the publisher must establish that it had received the advertisement in complete form.  Justice Nicholas concluded that this was not necessary.  All that the publisher must show is that an advertisement was accepted by the publisher for publication.

His Honour then went to on to analyse whether, in the case of the eleven advertisements in question, Google would be able to discharge the onus that it knew or had reason to suspect that their publication would not amount to misleading or deceptive conduct.  Interestingly, in respect of some of the advertisements, his Honour found  that Google may not have been able to discharge that onus and concluded that if Google (as opposed to just the advertisers) had been found to have made the relevant representations it would have been precluded from relying on the defence.

It is interesting that even though Google may not in some circumstances have been able to discharge the onus it had to establish this defence (and therefore by inference may have had some knowledge or reason to believe that the particular advertisements in question contained representations that were misleading or deceptive), it nonetheless escaped liability because it was found not to have made the representations in the first place.