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Google AdWords in the High Court
11/09/2012

Today’s hearing in the High Court marks the third round of litigation between the Australian Competition and Consumer Commission (ACCC) and Google over Google’s Adwords service.

 

Background to the case

Google derives revenue by displaying targeted advertisements (referred to as “sponsored links”) on the results pages of its search engine. The advertisements are generated by a system called “Adwords”. Sponsored links are either created by or at the direction of advertisers using Google’s Adwords program (which allows advertisers to create, change and monitor the performance of their sponsored links.) Each time a search query is entered into the Google website, Adwords runs an auction to determine which advertisements will be displayed and the order they will be displayed in. Adwords customers elect which auctions to participate in by nominating keywords. As part of the Adwords program, Google employs ‘creative maximisers’ who liase with customers. For example, there was evidence in this case that a ‘creative maximser’ advised the CarSales to nominate “Honda.com.au” as a keyword.

 

The ACCC first initiated proceedings in 2007 alleging Google had contravened section 52 of the Trade Practices Act 1974 (now s18 of Australian Consumer Law), engaging in conduct that was misleading or deceptive, or likely to mislead or deceive by publishing eleven advertisements on the Google search results page. The headline of each of the advertisements in question comprised a competitor’s name or trade mark, which linked users to the advertisers’ website.

 

At first instance, Nicholas J ruled in favour of Google, finding that although a number of the sponsored link advertisements were misleading or deceptive, Google had not made the representations and was merely communicating them to the user as an intermediary.

 

The Full Federal Court overturned this decision. Keane CJ, Jacobsen and Lander JJ found that Google had engaged in misleading conduct by providing the sponsored links as a response to users’ queries.

 

The appeal to the Full Federal Court concerned only four of the initial eleven advertisements dealt with at first instance (Just 4x4s Magazine, Alpha Dog Training, Honda, Harvey World Travel). The AdWords system has a “dynamic keyword insertion feature” which allows advertisers to nominate keywords, which are automatically inserted into the headline of the advertisement when they match a user’s search query. All four of the advertisements in issue at this stage of the litigation had headlines into which the user’s keywords were dynamically inserted by the AdWords system.

 

Issues before the High Court

The current issue before the Court is whether Google is responsible for the misleading implied representations made by the advertisements.

 

Google is arguing that they are not responsible for the implied representations because:

 

1. The sponsored link consists of three elements, the content of which is dictated by the advertiser, namely, the headline, advertising texts and the URL, and these would not exist but for the creation and direction by the advertiser;

2. Users of the search engine understand that the sponsored links are advertisements paid for by the advertiser; and

3. The misleading conduct alleged was the making of particular representations, namely, a commercial association or other relationship between two entities identified in the advertisement.

 

 

The ACCC is arguing that Google should be held liable for the breach given their involvement in the creation and dissemination of the advertisements:

1. Google used its proprietary algorithms to determine which particular advertisements would be eligible for display in response to a given query and determined which from amongst those eligible advertisements would be published, in response to a user’s query.

2. Google inserted the keywords from the user’s queries into the headlines of the advertisements.

3. Google collocated the headline with the advertiser’s URL and gave the headline the functional features.

 

The ACCC is also arguing that the conduct of the Google employees in assisting and advising advertisers to nominate name and product information of competitors as keywords is relevant to the assessment of Google’s conduct as a whole and should be reconsidered by the High Court.

 

Implications

Whilst this is not a case about copyright, the decision of the High Court is likely to have implications regarding the liability of online platforms that host third party content.

The High Court’s case information including today’s transcript can be viewed at:

http://www.hcourt.gov.au/cases/case_s175-2012

 

See the transcript of the application for special leave to the High Court at: http://www.austlii.edu.au/au/other/HCATrans/2012/160.html