Google in hot water with Australian competition watchdog

In July 2007 the Australian Competition and Consumer Commission (ACCC) commenced a landmark proceeding against Trading Post Australia Pty Ltd, Google Inc, Google Ireland Limited and Google Australia Pty Ltd (the Google companies together hereafter referred to as ´Google´) in the Federal Court of Australia relating to sponsored links on the Google website. Sponsored links refer to a practice by which businesses pay search engines to display links to their website, with the businesses nominating the keywords they want to trigger their advertisement. From a user's perspective, sponsored links facilitate the viewing of advertisements for products or services relating to the user's search terms and, for businesses, the aim is obviously to direct more traffic towards their websites.

The ACCC's first allegation is that Trading Post, a publisher of classified advertising in print and online in Australia, has engaged in misleading and deceptive conduct and represented that it has a sponsorship, approval or affiliation where one did not exist in breach of Sections 52 and 53(d) of the Trade Practices Act 1974. These claims arose as a result of Trading Post's alleged conduct in purchasing sponsored links to its website to be displayed by Google when an internet user conducted a search for two competitors of Trading Post in automotive sales. While the title of the sponsored link indicated that it would link to the websites of Charlestown Toyota and Kloster Ford, the link actually took the user to Trading Post's website. Obviously, businesses employ this practice not just to direct more traffic to their website but, of particular concern to the ACCC, to redirect traffic from the websites of their competitors.

The ACCC claims that Trading Post was misleading users to believe that there was an association between Trading Post and these two competitors. As for Google, the ACCC alleges that, in allowing the links to be published on its website, Google also engaged in misleading and deceptive conduct as well as representing a sponsorship, approval or affiliation that did not exist. By running this argument, the ACCC is seeking to establish that Google is responsible for the content of the advertisements that accompany a search performed on its website.

The ACCC is also alleging that Google has engaged in misleading and deceptive conduct by failing to distinguish adequately sponsored links from the unpaid 'organic' search results that Google sorts on the basis of relevance for the user. Currently, Google labels the advertisements as 'sponsored links' both above and adjacent to the organic search results, with the 'above' sponsored links highlighted and appearing at the very top of the search results webpage. Apparently, the worldwide conventions regarding the display of sponsored links were derived from a 2002 US Fair Trade Commission recommendation. However, the ACCC clearly believes that Google needs to attain a higher standard and ensure further differentiation in order to comply with its obligations under Australian trade practices law.

The ACCC is seeking not only declarations and injunctions relating to the Trading Post and Google's alleged contraventions of the Sections 52 and 53 of the Trade Practices Act, but also orders that both parties implement trade practices compliance programmes and Google publish a notice on its website outlining its breach of the act, as well as costs.

The ACCC claims that this is the first action of its type in the world, in the sense that it is the first regulatory body to seek clarification of Google's conduct in the context of trade practices law. If the ACCC successfully obtains these orders and Google is found to be responsible for the content of the sponsored links it publishes, the ramifications for online search companies will be enormous. Search engines around the world would need to revise their practices with regards to sponsored links or potentially forego this massive revenue base, with neither seeming a viable option. This would clip the wings of the booming online search marketing industry, forcing many businesses to alter their marketing practices in an increasingly competitive marketplace. Additionally, the implementation of a compliance programme would cost Google millions of dollars worldwide.

A directions hearing was held in the matter before Justice Allsop on August 21 2007, however, it is expected that the matter will not go to trial for at least a year.

Stephen Stern and Jennifer Wrigley, Corrs Chambers Westgarth, Melbourne