Are Google ads misleading - ACCC v Trading Post [2011] FCA 1086

The matter of Australian Competition and Consumer Commission v Trading Post Australia Pty Ltd [2011] FCA 1086 (ACCC v Trading Post) was a hearing before Nicholas J in the Federal Court of Australia in which the ACCC alleged that both Google and the Trading Post had engaged in misleading or deceptive conduct by advertising.

The ACCC published a helpful press release on its site concerning the outcome of this hearing, as follows:

Court decision on Google clarifies misleading advertisements 

The Federal Court has dismissed allegations by the Australian Competition and Consumer Commission that internet search engine Google engaged in practices likely to mislead consumers. 

The ACCC alleged that by failing to adequately distinguish advertisements from search results, Google had engaged in misleading or deceptive conduct. 

Justice Nicholas found that the use of the word “advertisement” or an abbreviation of that word, rather than “sponsored links”, might eliminate or reduce confusion in the minds of some users. 

However he held that the presentation of Google’s search results did not breach consumer law as most users would have appreciated that “sponsored links” were in fact advertisements. 

Since the ACCC instituted these proceedings, Google has changed the description of its advertisements on its search results pages from “Sponsored Links” to “Ads”. 

The ACCC was the first regulatory body to seek legal clarification of Google’s conduct from a trade practices perspective. However Google has been scrutinised over trademark use in the United States, France and Belgium. Google has also faced scrutiny overseas, particularly in the EU, in relation to competition issues concerning its search results business. 

The ACCC also alleged, and Justice Nicholas found, that the publication of a number of advertisements on Google’s search results page in which the headline of the advertisement comprised the business name, product name or web address of a business not sponsored, affiliated or associated with the advertiser was misleading or deceptive. Trading Post, as responsible for some of the advertisements, was found to have made false or misleading representations and engaged in misleading or deceptive conduct. 

The ACCC alleged that as a result of Google’s significant input into advertisements which appear on its search results pages, it was not only the advertiser but also Google which made the representations found to have breached the Act. However, Justice Nicholas found that Google was “merely communicating” the representations without adopting or endorsing any of them. 

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

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

The ACCC also notes that on the first day of the hearing, 8 March 2010, Google released a “Business Names Policy” which prohibited advertisers’ use of unrelated business names in the first line of ad text, when they are using that name to imply a special relationship with any unrelated third party. This policy was initially applied by Google in Australia and New Zealand only and was expanded to apply to all countries in mid-July 2010.

I have included below a sample page of a Google search to demonstrate what the Federal Court is referring to in its decision, together with explanatory arrows and titles.

The ACCC case against Google is set out succinctly at [12] and [13]:

12. Thus, there are two parts to the ACCC’s case against Google. The first part of the case is concerned with the overall layout and appearance of the results page which, it is said, fails to distinguish sufficiently between organic search results and advertisements. This part of the ACCC’s case extends to both advertisements which might appear on the left hand side of the results page immediately above the organic search results and to those advertisements which appear to their right, on the right hand side of the results page. The second part of the case is concerned with the use of what are said to be misleading keywords in the headlines of particular advertisements which may also appear on the left or right hand side of the results page.
13. The second part of the ACCC’s case is based upon eleven distinct claims involving various advertisers and sponsored links which Google is alleged to have published on its results pages. In particular, it is the ACCC’s case that these sponsored links were misleading or deceptive or likely to mislead or deceive because in each instance they included a headline consisting of a trading name, a product name or a website address of the advertiser’s competitor but which also serves as a clickable link to the advertiser’s website.

The allegation at [13] is more specifically explained at [10] as follows:

10. Sometimes the headline to an advertisement will consist of keywords selected by a user of the Google search engine that corresponds with keywords selected by the advertiser which may, according to the ACCC, also be a business or product name of the advertiser’s competitor. The ACCC alleges that when the user clicks on the headline consisting of such keywords, he or she is likely to be taken to a website that has no association with the keywords selected.

The advertiser referred to is the Trading Post. One of the allegations made by the ACCC is that the Trading Post engaged in misleading or deceptive conduct by advertising its business on Google with a headline 'Kloster Ford', a competitor of the Trading Post.

A summary of Google's response to these allegations is set out at [15] and [16]:

15. As to the first part of the ACCC’s case, Google simply says that there is nothing that is misleading or deceptive or likely to mislead or deceive in the way in which it presented advertisements on its results pages. It says that the expression “sponsored links” and the overall design and layout of its search page sufficiently distinguished such advertisements from organic search results.
16. As to the second part of the ACCC’s case, Google raises various answers. First, Google says that to the extent that any of the twenty sponsored links that are the subject of the second part of the ACCC’s case might be found to convey a representation that is misleading or deceptive or likely to mislead or deceive then any such representation was made by the advertiser and not by Google. Secondly, Google says that it has not in any event been established that any of the twenty sponsored links the subject of the second part of the ACCC’s case conveyed any representation that was misleading or deceptive or likely to mislead or deceive. Thirdly, Google says that if it is established that Google has by publishing a particular advertisement made any representation that is misleading or deceptive or likely to mislead or deceive, then it has a defence under s 85(3)of the Act.

The proceeding is brought under s52 and s53 of the Trade Practices Act 1974 (Cth) as the alleged conduct occurred prior to 1 January 2011. The Federal Court found that Google did not engage in misleading or deceptive conduct in relation to the sponsored links in the yellow box (at [166]):

It seems to me that the inference which ordinary and reasonable members of the class would draw from the appearance on the results page of the caption “sponsored links” when it is used to describe top left sponsored links is that the entries in the coloured box so described are links for which businesses seeking to promote their goods or services made payments to Google. They would therefore understand that these top left sponsored links are in the nature of advertisements.

The Federal Court also found that Google did not engage in misleading or deceptive conduct in relation to the advertiser's links on the right hand side (at [167]):

Similarly, in the case of the right side sponsored links, it seems to me that users would appreciate that they were also in the nature of advertisements. In particular, I do not accept the ACCC’s argument that the absence of the coloured background in the area of the results page where the right side sponsored links appear is likely to mislead or deceive users into thinking that the right side links are not advertisements. My own impression is that right side sponsored links are clearly distinguishable from the organic search results appearing to their left.

The Federal Court also found that Google did not engage in misleading or deceptive conduct in relation to the use of the term 'sponsored links' (now 'ads') and their position on the Google search page (at [173]):

In my view the representation conveyed by the use of the term “sponsored links” in the context in which it was used was that each of the links so described was a form of advertisement. Accordingly, I do not accept that users would have been likely to understand that sponsored links were the same as organic search results or that their position on the results page was determined by the same considerations that determined the position of organic search results. I do not intend to suggest by this that sponsored links are not “search results”. In one sense they are. What sponsored links will appear on a results page depends upon, among other things, the content of the search query. But I do not accept that in publishing “sponsored links” Google represented to users that they were organic search results, that they were the same as organic search results or that their appearance on the page was determined by the same considerations that determine when and where results which were not identified as sponsored links appeared on the page.

The Trading Post was found to have engaged in misleading or deceptive conduct by representing an association between it and Kloster Ford which did not exist (at [130] and [131]) and by representing that information relating to Kloster Ford could be found at the Trading Post Website (at [135] and [136]).

However Google was not found to have made the Trading Post representations (or any other advertiser's representations) by including these advertisements in the Google search (at [195]). The reason for this is set out by Nicholas J at [194] as follows:

Once it is accepted that the ordinary and reasonable members of the class would have understood, as was the fact, that the Kloster Ford advertisement and the Charlestown Toyota advertisement were advertisements, then it seems to me to follow that they would be most unlikely to have understood that any information conveyed by those advertisements was endorsed or adopted by Google. They would have understood that the message conveyed was a message from the advertiser which Google was passing on for what it was worth.

A summary of the findings made by Nicholas J is set out at [354] to [356] as follows:

354.  I am satisfied that there should be a declaration that Trading Post contravened s 52(1) of the Act by, in trade or commence, engaging in conduct that was misleading or deceptive or likely to mislead or deceive by publishing the Kloster Ford advertisement. This is on the basis that by publishing the Kloster Ford advertisement Trading Post made various representations which were misleading or deceptive, or likely to mislead or deceive, in the respects that I have identified. I am also satisfied that Trading Post contravened s 53(d) of the Act by representing, contrary to the fact, that it had an affiliation with Kloster Ford. I will make declarations to that effect in appropriate terms. The case brought against Trading Post based upon its publication of the Charlestown Toyota advertisement has failed due to the evidentiary deficiencies that I have previously identified.
355. I am not satisfied that Google contravened s 52 of the Act by failing to sufficiently distinguish advertisements (sponsored links) from organic search results on its search results pages. Nor am I satisfied that Google contravened s 52 of the Act by making any of the representations that the ACCC alleged Google made by the publication of the Kloster Ford advertisement, the Charlestown Toyota advertisement or any of the other advertisements about which the ACCC complained in this proceeding.

The result in ACCC v Trading Post will come as some relief to Google, which is a company under a lot of pressure at the moment concerning its market power. However the case has shifted some of Google's behaviour. For instance Google has renamed 'sponsored links' to 'ads' on its search engine to more clearly distinguish what are search results and what are advertisements.