Australia’s competition regulator, the ACCC, is taking Google to court, alleging that the search engine company has engaged in “misleading and deceptive conduct in relation to sponsored links that appeared on the Google website”, in contravention of section 52 of the Trade Practices Act 1974 (Cth).

Section 52(1) provides that a “corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

The ACCC has alleged that Google has engaged in misleading and deceptive conduct in breach of section 52 by:

–in 2005, providing sponsored links to online classified advertisement provider Trading Post‘s website, in the guise of hypertext links to two of Trading Post’s competitors (but associating the text with the Trading Post’s URL); and
–on a continuing basis, “failing to adequately distinguish sponsored links from “organic” search results”.

The ACCC has also alleged that Trading Post contravened sections 52 and 53(d) of the Act in 2005 when the names of their business competitors (car dealerships) appeared in the title of Google sponsored links to Trading Post’s website. (Section 53(d) prohibits a corporation from representing that it “has a sponsorship, approval or affiliation it does not have”.)

As noted by the ACCC in its media release, this action appears to be the first of its kind in the world:

This is the first action of its type globally. Whilst Google has faced court action overseas, particularly in the United States, France and Belgium, this generally has been in relation to trademark use. Although the US anti-trust authority the Federal Trade Commission has examined similar issues, the ACCC understands that it is the first regulatory body to seek legal clarification of Google’s conduct from a trade practices perspective.

in 2001-02, the FTC investigated whether popular search engines, including Alta Vista, Looksmart, Lycos, and AOL, violated section 5 of the Federal Trade Commission Act (15 U.S.C. s 45(a)(1)) by not disclosing that advertisements are included in search engine results. This statute provides that “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful”. I will not attempt to go into the case law interpreting this provision here.

As reflected in their 27 June 2002 letter to the complainant, the FTC concluded that search engine companies should ensure that search results should clearly distinguish between results that are the paid advertisements and those that are not, and that “no affirmative statement is made that might mislead consumers as to the basis on which a search result is generated.” The search engine companies received a letter from the FTC to this effect.

According to their media release, the ACCC is seeking:

–declarations that Google contravened section 52;
–declarations that Trading Post contravened sections 52 and 53(d);
–injunctions restraining Trading Post from representing through sponsored links an “association, sponsorship or affiliation with another business where one does not exist”;
–injunctions restraining Google from publishing such sponsored links;
–injunctions restraining Google from publishing search results that do not expressly distinguish advertisements from organic search results;
–orders that Trading Post and Google implement trade practices compliance programs;
–an order that Google publish a notice on its website outlining the above declarations, injunctions, and orders; and

A number of questions are raised by the ACCC’s action. As Joshua Gans has noted, is the ACCC arguing that publishing an advertisement means that you agree with its content?

Also, as a factual matter, the current distinction drawn by Google between “sponsored links” from general search results is already pretty clear. It will be interesting to learn how the ACCC believes Google could have clarified this distinction. Labelling advertisements as “sponsored links” is certainly more straightforward than calling them something like “featured sites” (as had some of the companies targeted by the FTC).

The first hearing will be before Justice Allsop on 21 August 2007 in the Federal Court in Sydney.