The Australian competition watchdog has accused Google of "misleading and deceptive conduct".
The Australian Competition and Consumer Commission (ACCC) has taken action against Google Inc, Google Ireland Limited, and Google Australia Pty Ltd in the Federal Court, Sydney, saying Google has breached the Trade Practices Act by failing to adequately distinguish between sponsored links on its website and "organic" search results.
The watchdog said that, in 2005, sponsored links for Newcastle car dealerships Kloster Ford and Charlestown Toyota would also direct users to the site of classified ad magazine Trading Post, a rival in the business.
The ACCC has also taken action against Trading Post.
An ACCC statement says it is seeking declarations from both Google and Trading Post that they breached the Trade Practices Act, as well as an injunction "restraining Google from publishing search results that do not expressly distinguish advertisements from organic search results".
Sydney Morning Herald (SMH) reports that Google Australia said it would fight the claims.
"Google Australia believes that these claims are without merit and we will defend against them vigorously," spokesman Rob Shilkin told SMH. "They represent an attack on all search engines and the Australian businesses, large and small, who use them to connect with customers throughout the world."
The ACCC's statement says while Google has faced action in other countries over trademark issues, it is "the first regulatory body to seek legal clarification of Google's conduct from a trade practices perspective". ®