The court ruled that Google was not merely a conduit but promoted the deception because its algorithms generated the placement of the advertisement. The case – believed to be the first time Google has been held liable for civil actions – marks a damaging setback for the company's AdWords search engine advertising operation.
"Google is in fact much more than a mere conduit," the court found.
"Several features of the overall process indicates that Google engages in misleading conduct."
The case was brought by Australia's consumer watchdog which focused on advertisements for four businesses – Honda, a travel company, a dog training centre and a car magazine – whose trading names had all been bought by rivals in Google's AdWords. It examined searches between 2006 and 2008.
The court said AdWords allowed rivals to buy words that returned sponsored results that, when clicked on, took users to websites of competitors.
A Google spokesman said the company was disappointed and that advertisers should be responsible for content produced on AdWords. The company may appeal to the High Court.
"We are disappointed by the Federal Court's decision that Google should be responsible for the content of four particular ads on its platform," the spokesman said.
"Google AdWords is an ads hosting platform, and we believe that advertisers should be responsible for the ads they create on the AdWords platform.
We're committed to providing an advertising platform that benefits both advertisers and users. "
A legal expert, Ben Edelman, from Harvard Business School, said Google's advertising system was "pretty evil" but the company was unlikely to comply with the decision in the United States.
"This is the first time where a court has ever ruled that Google is liable for the civil violations," he told ABC Radio. "Google's ads have been pretty evil all along ... Folks have been complaining for the better part of a decade about bad ads. And now, finally, a court is telling Google that they definitely need to do more about this. Google will try to say that this decision is an outlier, it's an Australia specific decision; frankly, that it's a mistake."
