Google, the world’s most popular internet search engine, is being taken to court for allegedly deceiving millions of users over links that are paid for by its advertisers.

In the first legal action of its kind, Australia’s competition watchdog is seeking an injunction to stop Google from displaying search results that did not “expressly distinguish” advertisements.

The Australian Competion and Consumer Commission claims that Google has engaged in deceptive or misleading conduct in relation to the use of its paid links. It also seeks an injunction to prevent Google from displaying the paid links of advertisers that claimed an association with other businesses or competitors where no such association existed.

Google said that the claims are “without merit” and that it would vigorously defend the court action. Google said the action was “an attack on all search engines and the Australian businesses, large and small, who use them to connect with customers throughout the world”.

Expert View

If the courts rule Google needs to be a pro-active policeman instead of a reactive philosopher the world of the web could be radically changed

Rhys Blakely

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But the legal dispute has prompted fears of a wave of similar challenges in other countries that will test the advertising methods used by Google and other internet companies.

Revenue from sponsored links have helped to propel Google’s stock market value to $169 billion (£83 billion) since it was started in a Silicon Valley garage by two university students 8½ years ago.

At the heart of the dispute is the way in which Google displays the results of searches. Advertisers are clearly identified at the top of each page and in the right-hand column. But those same advertisers are likely to feature in the main search results, where they are not identified as sponsors. This, the Australian watchdog claims, constitutes an unfair trading practice.

The legal action has surprised the IT sector. Even in Australia, IT companies believed that the dispute over internet advertisers had been resolved by the Federal Trade Commission, the US regulator, as long ago as 2001.

The commission ruled that paid search results could be displayed to search engine users so long as they were clearly labelled as “sponsored links”. Google and other big search engines such as Yahoo! and Microsoft have adopted the commission’s ruling.

John Butterworth, head of the Australian Interactive Media Industry, said last night: “I can’t see that there is any deception going on when they [Google] make it perfectly clear in writing that they have sponsored links.”

The legal action arises from a separate investigation by the Australian competition watchdog, which started in 2005, after two car dealerships complained that potential customers who used Google to look them up were being first offered a link to a newspaper that carried used-car advertisements. The newspaper had paid Google for the right to use the names of the motor vehicle dealerships in its sponsored links, thus drawing people searching for the dealerships to the newspaper site. The newspaper was in competition with the motor vehicle dealerships for used-car buyers.

The threat to Google is that the courts will rule that it has a responsibility to police such behaviour. Google sells millions of keywords every day. Regulating auctions to make sure that bidders own any trade-marks they are trying to buy would be complicated.

The real risk is that similar rules would spill over into other parts of Google’s business, to make the company responsible for all search results, not just the sponsored ones.

The group is involved in a legal battle involving YouTube. After buying the world’s largest video-sharing site for $1.65 billion last year, Google was served with a $1 billion lawsuit by Viacom, the media giant behind MTV, which alleged that Google was not doing enough to prevent the appearance of bootlegged clips.

If the courts agree with Viacom and Australia’s car dealers that Google needs to be a policeman, the internet could be seriously affected.

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