The peak Australian consumer watchdog has charged global search engine Google with deceptive and misleading conduct over sponsored links.
Sydney – Australia’s consumer watchdog launched legal action accusing Internet giant Google of misleading web users Thursday in a case that analysts said would “send a shudder” through the global IT industry.
TheAustralian Competition and Consumer Commission (ACCC) alleged Google has misled users by misidentifying sponsored links that appear on its results page, a major source of income for online search engine providers.
The ACCC alleges Trading Post Australia, Google Ireland, Google Australia and Google Inc. were misleading in the search engine’s “sponsored links” section.
The claims are the latest in a string of cases centered on trademark rights that argue Google’s pay-per-click advertising system — the company’s mainstay revenue generator — is used by competitors to unfairly grab business from rivals.
The Australian commission alleges misleading and deceptive conduct by Trading Post and Google stemming from advertising that appeared on Google’s Web site in 2005.
The Trading Post is owned by Sensis, a division of Telstra.
The ACCC is alleging that Google, by failing to adequately distinguish sponsored advertising links from the so-called “organic” search results, when consumers type keywords into Google’s Web search system, which it asserts is misleading and deceptive conduct, the regulator said in a statement.
The complaint charges that Trading Post contravened sections of the Trade Practices Act of 1974 when the business named “Kloster Ford” and “Charlestown Toyota” appeared in the title of Google-sponsored links to Trading Post’s Web site.
It said the case arose in 2005 when Google’s search engine listed two car dealerships from the New South Wales city of Newcastle as sponsored links, which are paid for by companies to attract Internet users.
However, the links fed through to the website of a rival to the dealerships, the classifieds magazine “Trading Post,” which competes with them for automotive sales.
Both Newcastle-based car dealerships compete against Trading Post in automotive sales.
The ACCC, said in a statement on its Web site that it has filed a case in the Federal Court in Sydney against auto dealer Trading Post Australia Pty Ltd. and various Google subsidiaries.
The ACCC is seeking declarations that the Trading Post contravened sections 52 and 53(d) of the Act, declarations that Google contravened section 52 of the Act and injunctions restraining Trading Post from representing through sponsored links an association, sponsorship or affiliation with another business where one does not exist.
Shara Evans, the head of IT consultancy Market Clarity, said the case would have major implications if the court found that a search engine was responsible for monitoring everything that advertisers paid to put up as sponsored links.
“What would have a real impact is if Google had to take a policing role into the content of the advertisers; that, I think, would send real shudders down the industry,” she told AFP.
The ACCC named Google Inc, Google Ireland Ltd and Google Australia Pty Ltd as defendants in the action, along with the Trading Post magazine.
It said it believed the legal action had no global precedent.
“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.”
Whilst Google has faced court action overseas, particularly in the United States, France and Belgium, this generally has been in relation to trademark use.
“This is the first action of its type globally,” the watchdog said in a statement today.
In its statement, the commission distinguished between trademark cases brought against Google and what it says is its first-ever regulatory action aimed at Google trade practices.
In at least two cases in U.S. courts, including one lawsuit brought by auto insurer GEICO against Google, the Web search advertising leader has prevailed.
But it lost a ruling last year in a French court by luxury goods maker Louis Vuitton SA. And Google faces a trial later this year in a California court by American Blinds and Wallpaper over similar issues.
Google said in a statement it would fight the allegations.
“Google Australia believes that these claims are without merit and we will defend against them vigorously,” spokesman Rob Shilkin said.
The statement argues that the case is an attack on the basic functions of all search engines and the Australian businesses, large and small, who use them to connect with customers throughout the world.
The chief executive of Australia’s Internet Industry Association, Peter Coroneos, said the regulator should have consulted the industry before taking Google to court.
“It is very unfortunate that the ACCC has decided to pursue a litigious strategy against one participant, rather than consulting more broadly on an issue that affects the entire industry,” he said.
Google Australia is a member of the IIA. But Coroneos told ZDNet Australia that was not the reason the association was voicing its opinion on the case.
“We think this case has ramifications for the entire industry,” he said. “I’m perplexed that the ACCC has chosen to move directly to litigation, rather than engage in discussion.”
Coroneos refused to comment as to whether such paid search practices were common across the industry.
“We are not commenting on the merits of the case, just the approach the ACCC has taken.”
The matter has been listed for a directions hearing in the Federal Court in Sydney on August 21.