ACCC loses AdWords battle with Google, but watchdog warns on misleading search advertising

The Australian Competition and Consumer Commission has warned businesses against misleading and deceiving consumers through search engine advertising, despite losing a case against Google where the watchdog claimed Google did not provide enough distinction between advertisements and search results.

In a Federal Court judgment handed down yesterday morning, Justice John Nicholas dismissed the consumer watchdog’s claims that Google does not provide enough distinction between paid advertisements that appear when a user performs a search and normal “organic” search results. Nicholas also disagreed with the ACCC that Google should be held liable for advertisers in their “sponsored links” section breaking trademark law.

The ACCC sued Trading Post Australia and Google in 2007 after Google search results from August 2005 revealed Trading Post was using competitor car dealers’ names to advertise through Google’s AdWords service.

Searching for “Kloster Ford” or “Charlestown Toyota” at this time had brought up a sponsored link for Trading Post Australia, with the respective car dealership names as the link title. However, there was no mention of Kloster Ford or Charlestown Toyota on the Trading Post website at that time.

The ACCC claimed companies would often buy ads on Google in this fashion, and presented nine other results where companies bought ads on Google with the name of one of their competitors in the link heading. But as with the Kolser Ford and Charlestown Toyota examples, none of these links provided information on the term originally searched for.

Justice Nicholas declared that Trading Post had contravened the Trade Practices Act by engaging in misleading or deceptive conduct by publishing such advertisements. The company was ordered to pay $28,000 towards the ACCC’s legal costs.

But as well as taking action, the ACCC claimed Google should also be held responsible for the use of this advertising strategy.

The ACCC claimed Google could be misleading customers as it claimed to rank search results based on relevance, not based on the money it received from advertisers. People unfamiliar to the search engine could be easily confused or mislead.

Google insisted that the fact it labelled its advertisements “sponsored links” and used coloured shading to present the ads was enough to clearly distinguish what was an ad and what wasn’t. The ACCC again claimed that both the labelling and the shading were not sufficient in distinguishing the difference.

Google also argued that if any advertisement on its site is misleading or deceptive, it is clear that the representation is made by the advertiser, not by Google itself.

However, Justice Nicholas also declared that he was “not satisfied that Google contravened [the Trade Practices Act] by failing to sufficiently distinguish advertisements from organic search results on its search results pages.”

Justice Nicholas also declared that the ACCC would be required to pay Google’s costs of the proceeding.

Despite the disappointing loss, ACCC Chairman Rod Sims is warning businesses against following in Trading Post’s footsteps and engaging in deceptive advertising practices.

“This case is important in relation to clarifying advertising practices in the internet age,” Sims said in an ACCC press release.

“All businesses involved in placing advertisements on search engines must take care not to mislead or deceive consumers.”

A Google Australia spokesperson expressed the company’s joy on the Federal Court ruling in an official comment yesterday.

“We are pleased with the Federal Court’s ruling and that the matter has been resolved,” the spokesperson said.

“Our guiding principle has always been that advertising should benefit both advertisers and users, and our aim is to ensure that ads are relevant and useful.”

Sensis was unavailable for comment at this time but the company told The Age that the decision by the Federal Court has re-confirmed a settlement made between the company and the ACCC in 2008. As part of the settlement, Sensis agreed that they have contravened the Trade Practices Act.

“Sensis has continued to be vigilant in ensuring that it has strong compliance measures in place regarding acceptable search engine marketing practices.”

The Federal Court decision comes hot on the heels of a Senate hearing in Washington, where senators expressed their worries that Google was giving its own services priority in search results over its competitors. Google executive chairman Eric Schmidt was there defending his company against claims that they were “cooking” their search results to favour its own services.

Schmidt told the hearings Google “does nothing to block access to any of the competitors and other sources of information in web searches”.

The hearings are continuing and reports suggest Schmidt may be called to give evidence.