Hiding from the Google-monster: High Court decision threatens small business

by Mackenzie McCarty11 Feb 2013

In a surprise turn-around, the High Court of Australia has unanimously allowed Google's appeal from a previous decision, claiming that Google is not responsible for the content of third party sponsored links (aka: ‘Adwords’) displayed on search result pages – something which consumer rights groups say could have a detrimental impact on the nation’s small business owners.

But first, a bit of background: In July, 2007, the ACCC issued proceedings against Google in the federal court, alleging that the company had engaged in misleading and deceptive conduct within the meaning of the Trade Practices Act 1974 (TPA) by ‘making’ misrepresentations contained in sponsored links that had been purchased from Google by a number of Australian advertisers.

At first instance, Justice Nicholas found that the advertisers sponsoring the links were guilty of misleading or deceptive conduct, but held that Google was not responsible for the content of such links because it had merely ‘communicated them’ and had not endorsed or adopted their contents.

But, on appeal by the ACCC in April, 2012, the Full Federal Court unanimously reversed Justice Nicholas' findings and held that Google had in fact engaged in misleading and deceptive conduct.

According to the Full Court, the fact that the sponsored link is displayed on the screen in response to the user’s search, which is made by the entry of selected key words, is critical.

“Thus, the user asks a question of Google and obtains Google’s response."

However, earlier this week, the High Court overrode these findings, unanimously deciding that Google did not engage in misleading and deceptive conduct, setting aside the Full Court's decision.

The Australia Institute's Dr Richard Denniss, says he's disappointed with the court's decision, but not terribly surprised.

"Unfortunately, the courts have been taking a very narrow interpretation of the competition laws for some time now so while the ACCC obviously believed it had a strong case, it’s not a complete surprise that they lost."

Denniss says he believes the biggest problem surrounding this issue is the way that the online environment is transforming commerce, and the kinds of market power possessed by some firms, far more quickly than the law is changing.

"Cases like this make it more likely that in 5 or 10 years’ time, customers and small businesses may be up against some very big online suppliers with very few options available if they are unhappy."

Australian Retailers Association executive director, Russell Zimmerman, agrees, saying the High Court’s decision is a backwards step for the country’s small business owners.

“I am a little bit surprised, because if you look at what happened in Europe, there appears to be a very strong case - and furthermore there is some fairly strong evidence from what I can see that this will affect Australian retailers quite heavily.”

Zimmerman says that, compared to similar court cases involving Google overseas, Australia’s version ‘hasn’t received much coverage’- and that’s odd, really, because Australians are one of the most homogenous search engine user populations on Earth.

“Google has 97% search coverage in Australia – it’s essentially the sole internet gate keeper.”

This means the company accounts for nearly 100% of internet searches on our shores and that it holds tremendous advertising sway – even more so than in other parts of the world.

But what does the High Court’s decision mean for you?

The problem is, effectively, that within the Adword model, advertisers pay Google to place their name at the top of search results whenever users type in a particular word.

A quick search under ‘mortgage broker, Sydney’, for instance, brings up an ad for Aussie Home Loans as the first result and Zimmerman says this poses a threat to small start-ups.

“It could well mean that you have to pay to get yourself the right listing, offering an ever-increasing amount of money to get yourself situated.” 

Otherwise, you could risk sinking into the oblivion of page two, where less than 15% of search engine-users bother to venture.

Zimmerman says the ethicality of Google’s Adwords model is certainly being questioned, but says our own High Court case more or less circumvented the core issue.

“I think it’s interesting that the mode of operation of Google is really being questioned around the globe… The issue really under investigation in other parts of the world is whether Google uses its own prominence to promote higher paying advertisers – side-lining competition…I don’t think the [Australian] case was actually really run on the same basis.

Rather than focus on the ethicality of the Adword model in general, Zimmerman say ACCC’s initial allegations simply challenged whether Google could be held responsible for the content of advertising paid for and displayed on the site. However, following the new High Court decision, he says the consumer group may change tactic.

“I guess it’s going to be of interest to see what the ACCC does from here. I think they could look at it in a different way – they could re-appeal on the other basis. They could see if there’s a market dominance.”

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