POTENTIAL FAIR TRADING ACT LIABILITY FOR WEBSITE MATERIAL*

by: JOHN LAND

IN FEBRUARY, THE High Court of Australia upheld an appeal by Google against the decision of the Full Court of the Federal Court of Australia holding Google liable for misleading and deceptive conduct.[1]

The Google case suggests that a website owner will not be liable for misleading advertising placed on its website where the website owner does not itself adopt or endorse the misleading statement.

Some care needs to be taken in applying the case to New Zealand due to the relatively strict approach previously taken by the Supreme Court in New Zealand for liability under the Fair Trading Act for the passing on of misleading information.[2] It is, however, likely that the same result would apply in New Zealand as long as it is obvious to users of the website that the information in question comes from a third party advertiser.

The Google case related to a number of paid advertisements (sponsored links) which contained misleading information. The Australian Competition and Consumer Commission (ACCC) contended that Google should be liable for misleading and deceptive conduct because it enabled and allowed the publication of the advertisements.

The ACCC claimed that particular search results displayed by the Google search engine conveyed misleading and deceptive representations and that by publishing or displaying those search results Google engaged in conduct in contravention of the Australian equivalent of s9 of the Fair Trading Act 1986.

As is well known, the Google search engine allows internet users to search for web pages by entering search terms into a search field and clicking on a button marked “Google Search”. If a user of the Google search engine entered search terms into the search field and clicked on the search button, the Google search engine would display two types of search results, organic search results and sponsored links.

Organic search results are linked to web pages, which are ranked in order of relevance to search terms entered by the user. Organic search results are displayed free of charge. The order of relevance of organic search results is determined by an algorithm developed by Google which is a function of a number of factors.

A sponsored link is a form of advertisement. It is created at the direction of an advertiser who typically pays Google each time the user of the Google search engine clicks on the sponsored link.

Google provides advertisers with access to the AdWords program which allows advertisers to create, change and monitor the performance of sponsored links. An advertiser using the AdWords program to create a sponsored link will specify a headline, the address for the web page to which the headline links, and some advertising text within certain word limits. The advertiser will also specify key words which trigger the appearance of the sponsored link when entered as search terms by a user of the Google search engine.

Participation in the AdWords program is subject to Google’s terms of service. These terms include an agreement by the advertiser that they will not use any trade mark or trade name of any company or organisation in a way that is likely to cause confusion about the owner or authorised user of the mark or name.

The ACCC complained about a number of sponsored links which it said conveyed misleading and deceptive representations due to the use by advertisers of competitor names as key words.

By way of example, one of the sponsored links that the ACCC complained about was a sponsored link relating to dog training.

One dog training company was called Alpha Dog Training. One of its competitors was Ausdog. The ACCC complained about a sponsored link belonging to Ausdog. Ausdog had a sponsored link in the following terms:

“Alpha Dog Training DogTrainingAustralia.com.au all breeds.

We come to you. No dog that can’t be trained.”

The result of this sponsored link was that if someone conducted a Google search using the search term “Alpha Dog Training”, then a sponsored link would come up that linked you to the website of Ausdog (not the website of Alpha Dog Training).

The judge at first instance found that by the publication of the Ausdog advertisement, Ausdog represented that it had a commercial association with Alpha Dog Training, and that information regarding Alpha Dog Training and its products or services could be found at the website of Ausdog. Unsurprisingly, the judge found that these representations were misleading and deceptive.

The question was whether Google itself engaged in misleading or deceptive conduct by publishing or displaying particular sponsored links including the Ausdog advertisement.

The Full Court of the Federal Court of Australia held that Google was liable. The Full Court said that it was Google’s technology which created what was displayed in response to the user’s Google search. This meant Google did not merely repeat or pass on a statement by the advertiser.

The High Court of Australia overturned the decision of the Full Court. The High Court noted that Google has no control over a user’s choice of search terms or an advertiser’s choice of key words. The High Court rejected the ACCC’s submission that it was Google rather than the advertisers that produced (in the sense of making or creating) the sponsored links in question.

The High Court noted that the advertiser was the author of the sponsored link. The automated response which the Google search engine makes to a user’s search request by displaying the sponsored link is wholly determined by the key words and other content of the sponsored link which the advertiser has chosen. In the High Court’s view, the display of sponsored links did not render Google the maker or author of the information in the sponsored link. The technology which lies behind the display of a sponsored link merely assembles information provided by others for the purpose of displaying advertisements directed to users of the Google search engine.

The High Court concluded that Google was not relevantly different from other intermediaries such as newspaper publishers or broadcasters who publish, display or broadcast the advertisements of others. The fact that provision of information by the internet will necessarily involve a response to requests made by an internet user, did not disturb the analogy between Google and other intermediaries. Accordingly, to the extent that it displays sponsored links, the Google search engine was only a means of communication between advertisers and consumers.

The High Court said that ordinary and reasonable users of the Google search engine would have understood that sponsored links were created by advertisers. The Court also said that such users would also have understood that the representations made by the sponsored links were those of the advertisers, and were not adopted or endorsed by Google.

Accordingly, the High Court held that Google did not itself engage in misleading or deceptive conduct, or endorse or adopt the representations which it displayed on behalf of advertisers.

In my view, the decision in the Google case is essentially consistent with the position that has been understood in New Zealand.

A publisher of an advertisement that does not endorse or adopt the advertisement will not be liable for misleading conduct just because the advertisement is incorrect.

For example, in a case alleging Telecom Directories Ltd had breached the Fair Trading Act by publishing in its directory allegedly misleading advertisements, Justice Heath dismissed an application for interim injunction holding there was much to be said for the proposition that Telecom ought to be treated as acting merely as a conduit, and therefore not responsible if anything was misleading in the information conveyed.[3]

The Supreme Court decision in Red Eagle Corporation Ltd v. Ellis[4] does, however, make it clear that in New Zealand, the “mere conduit” defence will be applied relatively strictly.

In that case, the Supreme Court stated that to be a “mere conduit” the conveyor of information must have made it plain to the recipient that he or she is merely passing on information received from another, without making it appear to be information of which the conveyor has first-hand knowledge. Unless it must be obvious to the recipient that information is second-hand, the conveyor who does not make this clear takes the risk that he or she will be taken by the recipient to have spoken from personal knowledge.

The Court of Appeal in the Red Eagle case had held that the defendant was a “mere conduit” because his communication contained no hint that he had checked or was capable of checking the correctness of information given held this was the wrong approach and that it was the responsibility of Mr Ellis to say that he was merely passing on information that had been supplied to him.

Accordingly, some care should be taken in extrapolating the reasoning in the Google case to New Zealand.

The Google case stands for the proposition that those allowing publication of misleading advertisements on their websites will not be liable unless they endorse or adopt the misleading advertisement.

New Zealand case law would suggest a similar approach at least where it is obvious to users of the website that the information comes from a third party advertiser. Where that is not obvious then website owners will be at risk where they allow publication of misleading information sourced from third parties.

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* Published with kind permission of Law Talk, Law Society of New Zealand.

**John Land is a senior competition law specialist and commercial litigation barrister at Bankside Chambers in Auckland. He was formerly a partner of national law firm Kensington Swan for 20 years. He can be contacted on (09) 3791513 or at john.land@bankside.co.nz.

Endnotes:

[1] Google Inc v. Australian Competition and Consumer Commission [2013] HCA 1.

[2] Red Eagle Corporation Ltd v. Ellis [2010] 2 NZLR 492.

[3] Leafscreen Z Ltd v. Leafbusters Group Ltd (2004) 10 TCLR 967.

[4] [2010] 2 NZLR 492.