Do Google's Sponsored Links Constitute "Misleading and Deceptive Conduct"?

Australia's competition regulator, the Australian Competition and Consumer Commission (ACCC), is taking legal action against Google alleging that they do not adequately distinguish between sponsored and organic search results.

Their case is based on the practise of companies purchasing AdWords for their competitors, in this case 'The Trading Post' purchased sponsored results for two car dealerships in Sydney. The ACCC is also taking action against the Trading Post.

It's an interesting situation, and one that has has come up in the past, with the legalities and merits questioned and discussed at length in the SEO world. While Google has faced legal action in relation to trademark infringement in AdWords advertising in the past, the ACCC claims this is the first ever action looking at the practice from a trade practices perspective. I believe this may also be the first time that 'sponsored links' (as opposed to sidebar ads) have been the specific cause for complaint.

The way sponsored search results are shown was changed recently, Philipp from Google Blogscoped has previously written about the changes.

UPDATE (16/07/2007)
Google responds to the ACCC claims via the Official Google Australia Blog.

"...the ACCC's claims are without merit. Accordingly, we will be vigorously defending against these claims in court."