With Its Australian Court Victory, Google Moves Closer to Legitimizing Keyword Advertising Globally (Forbes Cross-Post)

By Eric Goldman

Google’s ($GOOG) keyword advertising program, AdWords,  has been subject to constant legal challenges for the past decade.  After an initial period of legal uncertainty, AdWords’ legal fortunes recently have brightened in the United States and Europe.  Earlier this month, AdWords notched another strong win in court, this time in Australia.  Considering these developments as a whole, Google has effectively gotten a clean legal bill of health for its AdWords service around the globe.  Google’s impressive accomplishment also provides a useful cautionary tale about overregulating technological innovations.

Google’s Australia Win

Six years ago, the Australian Competition & Consumer Commission (ACCC) sued Google for false advertising.  The ACCC complained that AdWords advertisers bought keyword advertising on competitors’ trademarks and displayed those trademarks in their ad copy, which alleged confused consumers.  The ACCC sought to hold Google responsible for publishing these allegedly deceptive ads.

shutterstock_17463271.jpgThe High Court of Australia rejected the ACCC’s arguments and ruled in favor of Google.  The court says:

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 in their capacity as consumers of products and services.  In this sense, Google is not relevantly different from other intermediaries, such as newspaper publishers (whether in print or online) or broadcasters (whether radio, television or online), who publish, display or broadcast the advertisements of others….To the extent that it displays sponsored links, the Google search engine is only a means of communication between advertisers and consumers.

There are two non-standard aspects of this ruling.  First, the plaintiff was a government agency suing for false advertising, not the more typical situation of an unhappy trademark owner suing for trademark infringement.  Second, the High Court interpreted a specific Australian statute regarding secondary liability.  Still, despite these quirks, I think the ruling has broader implications.  In the allocation of legal responsibility between Google and its advertisers, the High Court treats the advertisers as the legally significant decision-makers and treats Google as a tool for advertisers, i.e., a technology platform that advertisers use to publish their own ads.  Once a court embraces that division of responsibility, the case resolution is obvious.

Global Acceptance of AdWords

Google’s emphatic Australian complements recent developments in Europe and the United States.  In the European Union, Google won a strategic victory at the European Court of Justice in 2010 based on the same paradigm adopted by the Australian High Court, i.e., AdWords is a tool, and the advertisers bear responsibility for how they use it.  Although the ECJ opinion didn’t completely resolve all of the open issues, the ruling has effectively ended European AdWords-related trademark litigation against Google.

In the United States, trademark owners have sued Google for AdWords many times (over 2 dozen times by my count).  While Google has occasionally gotten dismissals in court, Google hasn’t yet set broad precedent like the ECJ ruling.  At the same time, despite Google’s occasional preliminary losses against trademark owners, no trademark owner has won a final court judgment against Google.  Google recently settled the Rosetta Stone lawsuit, which ended the last major legal challenge against AdWords  in the United States.  Only a couple of minor pending lawsuits are remaining to mop up.  In other words, after the Rosetta Stone settlement, Google tacitly secured the legality of AdWords under U.S. trademark law.

The Development of Cyberlaw

“Cyberspace exceptionalism” is the approach of regulating the Internet differently than other media.  In some cases, the Internet actually has bona fide technological differences that support different regulatory treatment; but more often, the differences between the Internet and other media are exaggerated or imagined.

With respect to keyword advertising, in 2009 I wrote:

Keyword triggering seems especially susceptible to cyberspace exceptionalism. After all, the triggering process is unfamiliar and poorly understood, which naturally leads to suspicion. Over time, consumers and judges will better understand keyword triggering technologies…

I think we’ve arrived at this destination.  After a decade of legal battles, Google’s campaign to legitimize AdWords–now nearly complete–has been a complete success.

How did Google triumph over the initial impulses to regulate keyword advertising?  I’ll point to three factors:

1) Efficacy.  Keyword advertising has numerous advantages over other advertising options.  It provides good ad targeting to advertisers, consumers often find keyword ads relevant to their interests, and (as I explain here) cost-per-click (CPC) keyword advertising nicely shares the risks of ad performance between advertisers and publishers.  So one reason for the eventual acceptance of keyword advertising is that it is a better option than the advertising alternatives.

2) Venerability.  Over the course of years, consumers–and judges–increasingly have had first-hand positive experiences with keyword advertising.  Keyword advertising has evolved from an Internet novelty into an integral part of our daily lives.

3) Money.  AdWords achieved venerability only because Google had the financial resources and fortitude to fight–and defeat–numerous and expensive legal battles across the globe.

To me, AdWords’ evolution provides a good cautionary tale for regulators and judges dealing with emerging technologies.  We should not overrespond to any initial negative emotional reactions to new technology.  Instead, we should regulate emerging technologies (if at all) anticipating that consumer perceptions–and the technology itself–will evolve and improve over time.

In particular, regulators and judges should recognize that AdWords’ venerability is an exceptional story, not the norm.  Many other innovators and entrepreneurs won’t have Google’s financial staying power, meaning those innovations are vulnerable to being permanently damaged or killed by unchecked regulatory impulses before the innovation takes root.

Case Citation:  Google Inc v. Australian Competition and Consumer Commission, [2013] HCA 1, S175/2012 (High Court of Australia Feb. 6, 2013).  The case appeal page.  Blog post on the intermediate court ruling.

[Photo credit: The Australian High Court building // ShutterStock]