On 22 September 2011, Nicholas J in the Federal Court of Australia handed down his long awaited decision on search engine marketing in Australian Competition and Consumer Commission v Trading Post Australia Pty Ltd  FCA 1086.
The case concerned the legality of advertisements (otherwise known as sponsored links) for Trading Post which had been displayed on the Google search engine in response to certain search terms being entered into the Google search. The advertisements used trade marks, business names and domain names of competitors to the Trading Post and appeared above and/or to the right hand side of the "organic" search results which are naturally generated by the specific search terms used.
The ACCC brought proceedings against Trading Post Australia Pty Ltd and Google, Inc alleging breaches of the Trade Practices Act 1974 (Cth) (the Act).1
The decision absolves Google from responsibility for the unilateral conduct of advertisers who choose key words to determine which search terms should cause their advertisement to appear alongside Google's organic search results in any given search. In the absence of any evidence that Google plays a role in those determinations, advertisers are solely responsible for the misleading effects of using another's trade marks, business names or domain names as part of their search engine marketing strategy.
The Court found that Trading Post had contravened the Act for creating advertisements that were:
- misleading and deceptive in contravention of section 52(1) of the Act; and
- false in representing that Trading Post had an affiliation that it did not have, in contravention of section 53(d) of the Act.
By contrast, the Court found that Google had not contravened the Act.
Reasons for the Decision
Although the ACCC brought proceedings in respect of a total of 10 advertisements, breaches of the Act were alleged against Trading Post in respect of only 2 advertisements. Both advertisements used the names of car dealerships ("Kloster Ford" and "Charlestown Toyota") in the headlines of advertisements (Sponsored Links)2 which were displayed on Google's search results in response to a search using those terms. The Sponsored Links were links to the Trading Post website, a website that contained no information relating to either dealership, but instead carried advertisements for cars and other items for sale by third parties.
The ACCC alleged that the two advertisements created by Trading Post contained a number of representations which were in breach of the Act. Nicholas J did not agree with the ACCC in respect of all the representations it alleged were conveyed, but did agree that the advertisements represented that:
- there was an association between Trading Post and the respective car dealership;
- there was an affiliation between Trading Post and the respective car dealership;
- information relating to the respective car dealership could be found at the Trading Post website;
- information relating to the products of the respective car dealership could be found at the Trading Post website,
and that such representations were made in contravention of the Act in relation to the Kloster Ford Sponsored Links. His Honour found that the same representations were conveyed, but were not misleading in relation to the Charlestown Toyota Sponsored Links
In respect of Google, the ACCC argued:
- first, that the display of Sponsored Links generally was a breach of the Act because it was not clear that the Sponsored Links were the result of a paid advertisement; and
- second, that Google was also a party to making the representations which were alleged to be in breach of the Act.
In respect of the first argument, his Honour found that:
- the term "Sponsored Links"3 (which was used in association with the advertisements); and
- the manner in which they were displayed (either enclosed in a box of a different coloured background or to one side),
were sufficient to make it clear that the Sponsored Links were the result of a paid advertisement.
In respect of the second argument, his Honour found that Google had simply passed on information which had been provided to it by advertisers. His Honour came to this conclusion notwithstanding that Google:
- offered a facility whereby an advertiser could have the headline of a Sponsored Link generated automatically based on a keyword that included a competitor's trade marks, business names and domain names (depending on
- in some cases, suggested competitor's trade marks, business names and domain names to advertisers.
It is relevant to note that the ACCC did not allege Google aided and abetted advertisers in making representations that the Court found were in breach of the Act.
Although the ACCC did not bring proceedings against the advertisers in respect of the other 8 advertisements, Nicholas J nevertheless considered the matters in the context of his decision in respect of Google and found that, while Google had not contravened the Act, the advertisers (who were not joined in this claim) of these eight other advertisements had done so. 4
Overseas Decisions in step with Australia
The Federal Court's judgment coincides with two overseas judgments on related issues, one in the German Federal Supreme Court and one in the European Court of Justice.
In Germany, the Court handed down its decision in the Bananabay case.5 As in Australia, the Court found that paid search results that appeared when entering the trade mark of a competitor were not in themselves prohibited. In the German case, the advertisement did not contain the trade mark in the text of the advertisement or in the URL and the German Court considered that infringement had not taken place.
In the European Court of Justice, the Court handed down its decision in Interflora Inc v Marks & Spencer plc C-323/09 This judgment involved a question about the interpretation of European Directives. As such, the final outcome of the decision is still dependent on the English High Court applying the ECJ's decision to the facts in the particular case. The ECJ found that it is possible that the use of a trade mark as a paid search keyword constituted infringement in three respects:
- by misrepresenting the guarantee of origin (this is particularly the case with Interflora as it is a brand that is used by numerous independent florists);
- by interfering with the trade mark owner's right to acquire or preserve reputation (such as by jeopardising the maintenance of loyalty to a particular brand); and
- by benefiting from the reputation of a well-known trade mark without paying financial compensation.
These Australian and European decisions provide an important reminder that businesses need to exercise special caution when using the trade marks, business names and domain names of competitors. In the case of paid search advertisements, the risk that an advertiser will have engaged in misleading or deceptive conduct or conduct which falsely represents an association is in contravention of the Australian Consumer Law is appreciably high:
- if the advertiser uses the trade mark or business name of a competitor (or a misspelling) in the headline of a paid search advertisement; and
- if the advertiser uses the domain name (or a misspelling) in the headline of a paid search advertisement.
The decisions also provide clarity to businesses that provide services such as search engines and business listings. Such businesses will be at less risk of engaging in misleading or deceptive conduct provided that they merely pass on advertising provided by a third party. However, once those businesses start to offer advice on use and choice of key words, which include trade marks and names of other parties, then their activities become more risky. Such businesses should outline clearly the scope of their services in the terms and conditions that they have with advertisers.
On 12 October 2011, the ACCC filed an appeal against the Federal Court's decision in relation to Google's conduct in publishing four advertisements referred to during the trial. The ACCC believes that the cases relied upon by the trial judge in concluding that Google was not responsible for the publication of any misleading or deceptive advertisements related to traditional forms advertising and are not directly applicable to the internet search context. The ACCC is of the view that Google's key word system and the role of its advertising sales staff played a fundamental role in the presentation and publication of advertisements which the trial judge found to be misleading and that Google should therefore be held to be directly responsible for those misrepresentations. The appeal is likely to be heard early next year when the Full Federal Court will be asked for the first time to determine the level of responsibility of search engine providers for the publication of paid content on their sites.
Published: 17 October 2011
The assistance of Michael Camilleri, Solicitor, of Addisons in the preparation of this article is noted and greatly appreciated
1The Act is now the Competition and Consumer
Act 2010 (Cth).
2 The Sponsored Links were links that appeared in Google's search results but which were paid for by an advertiser. The Sponsored Links were displayed above and to the right of the "organic" (i.e. non-paid) search results. The Sponsored Links were marked with the heading "Sponsored Links" and, in the case of the Sponsored Links placed above the organic search results, were contained within a box with a yellow background.
3It is worth noting that Google no longer uses the term "Sponsored Links" on its search results. Sponsored Links are now presented under the heading "Ads".
4 This was particularly the case where the advertiser had used a variation on the domain name (such as "honda.com.au"). His Honour found this was because a link with the headline of a domain name represented that clicking the link would take the user to the domain name that was the subject of the headline.
5 IZR 125/07.
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