Misleading and deceptive conduct – the ongoing “AdWords” saga

Tuesday 4th September 2012

Protection of brands online is an ongoing struggle.  Over the years trade mark owners have fought against cyber-squatting, online parodies and inappropriate use of their brands on social media sites.  The battle is often against misleading or deceptive conduct, including conduct which suggests an association with and endorsement of products when no such association or endorsement exists. 

In more recent times, trade mark owners are battling use of their brands as “reserved” keywords in the context of search engines.  In the world of Google, these reserved keywords are known as “AdWords”.

About AdWords

Google Adwords are the text based advertisements that appear at the top and sometimes on the right hand side of all of Google’s search results. If there aren’t any advertisements showing at the top or right-hand side of the page, no one is advertising under those keywords. 
Google searches produce two distinct types of search results in response to search queries:

  • “Organic” search results which are displayed free of charge and listed in order of relevance (as determined by a complex algorithm developed by Google).
  • “Sponsored link” results which link to advertisements created by companies that have reserved an AdWord with Google to direct user traffic to their websites. 

Advertisers are charged every time a sponsored link is clicked on by a user.  This “pay-per-click” system produces significant revenue for Google.

Many brand owners find their competitors have reserved their brands as AdWords. 

Reserving a competitors brand as an AdWord can allow competitors to place their advertisement ahead of genuine search results for another brand, thereby potentially diverting internet traffic away from the true brand owner.

In the Courts: Australian Competition and Consumer Commission (“ACCC”) v Google Inc. [2012] FCAFC 49

The issue of AdWords has been dealt with through the Courts in overseas jurisdictions, including Europe, the United States and Australia.  While a competitor’s conduct in purchasing another trader’s brand as an AdWord has frequently be found in most jurisdictions to amount to misleading and deceptive conduct, search engine operators have largely been absolved of any liability – often being described as a mere conduit. 

In April this year in a landmark decision, the Full Federal Court of Australia unanimously upheld an appeal by the ACCC against Google in relation to Google’s AdWords service.  

The case concerned the use of sponsored links[*] compared to organic search results.  The Full Court found that using Google AdWords to trade on a competitor’s business or reputation is not only a breach by the competitor which placed the advertisement, but also a breach by the search engine provider which displayed the infringing words in its search results. 

Google’s AdWords were found to have breached the prohibition of misleading and deceptive conduct under section 52 of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)) by publishing advertisements falsely representing a connection between Google’s customers and competing businesses.  Google’s conduct and the function of its AdWords facility meant that Google was doing more than merely passing on the statements of the advertiser.   

Unsurprisingly, Google sought special leave to appeal the Full Court’s decision.  On 22 June 2012, Google was granted special leave by the High Court of Australia.  Google’s notice of appeal was filed on 28 June 2012 and the ACCC’s notice of contention was filed soon after on 5 July 2012.  The outcome of the appeal will likely be closely watched by trade mark owners and search engine operators worldwide.  Watch this space.

The New Zealand position

New Zealand’s equivalent to Australia’s Competition and Consumer Act 2010 is the Fair Trading Act 1986 (“FTA”).  To date, the New   Zealand courts have not been asked to determine whether the use of AdWords infringes trade mark rights or amounts to misleading or deceptive conduct in breach of the FTA.  However, any New Zealand court will likely be highly persuaded by the outcome of the Google Inc. v ACCC appeal.

Avoiding misuse of AdWords

Businesses need to be aware of their own liability if using competitors’ names and trade marks in advertisements using Google’s AdWords program.  We recommend only reserving AdWords in relation to words or phrases that are related to your own business and activities.

It is possible to prevent a competitor from misusing your name and trade marks via AdWords.  Google has an “AdWords trade mark complaint” process and Google customers can also opt their brand out of the AdWords system.  In order to “opt out” you need to have a registered trade mark and be a Google customer - you then simply submit an online form to Google identifying your Google customer identification number and your registered trade mark details.  As is so often the case, a trade mark registration is the first line of defence.

[*] Since the Australia Full Federal Court decision, Google has replaced the phrase “sponsored links” with the phrase “Why these Ads?”.  Clicking on the “Why these Ads?” phrase takes the user to a page with further information as to how the links were generated and, by signing into the user’s Google Account, the ability to alter their Ad preferences and opt-out of receiving sponsored links.

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