‘Cartel’ and ‘conduct’: warning for businesses entering agreements relating to keyword advertising

‘Cartel’ and ‘conduct’: warning for businesses entering agreements relating to keyword advertising

12 May 2022 Authored by: Adelaide Hayes, Tom Jury and Lochlann Woodall   |   Topics: Competition and consumer law, Compliance and corporate governance, Corporate and commercial, Intellectual property and technology

Australian businesses should note the New Zealand High Court’s recent finding that competitors entering agreements to minimise competition in relation to keyword advertising risk being penalised for cartel conduct.

In December 2021, the New Zealand High Court found that consumer finance company Moola.co.nz Limited engaged in cartel conduct. The conduct involved Moola entering agreements with its competitors in relation to keyword advertising when using the Google Ads service.

This finding is relevant to Australian businesses operating under the very similar Australian competition law regime. Businesses should be aware that entering agreements in relation to keyword advertising may be considered cartel conduct, and therefore unlawful.

What is competitive keyword advertising?

Many companies use Google’s keyword advertising function to promote their business. This involves bidding on specific Google search terms for the purpose of having an advertisement displayed alongside the organic search results relating to those terms.

It has become industry practice for businesses to engage in ‘competitive’ keyword advertising, by bidding on the brand names of their competitors in order to be advertised alongside the search results for that competitor. This practice attempts to attract customers away from a competitor’s business, and is a particularly important for lesser known businesses and new market entrants.

How did Moola engage in cartel conduct through competitive keyword advertising?

Since 2015, Moola bid on various Google search terms including the keyword ‘Moola’. To avoid being the victim of competitive keyword advertising tactics, Moola entered into agreements with five competitors in the consumer finance market.

Moola’s competitors agreed not to bid on keywords such as ‘Moola’, ‘Moolah’ and ‘Fast Little Loans’, and were required to list these terms as ‘negative keywords’, which prevented the competitors from being advertised in relation to that keyword entirely. Moola agreed to similar obligations in relation to its competitor’s keywords.

The Court found that these agreements had the effect or likely effect of:

  • controlling or maintaining the price of Google Ads advertising services
  • preventing, restricting or limiting the acquisition of certain Google Ads advertising services by Moola and its competitors.

This may have reduced consumer ability to compare the services and prices offered by competitors, resulting in an increased likelihood that consumers would pay more for lower quality or less suitable services. The Court ultimately determined that this conduct contravened the relevant New Zealand legislation.

Is this type of conduct illegal in Australia?

Whether the Australian Competition and Consumer Commission will pursue similar actions under Australia’s cartel conduct regime is yet to be seen. It is possible that this conduct could, in certain circumstances, amount to price fixing under the Competition and Consumer Act 2010 (Cth) (CCA), which can attract both civil and criminal penalties.

There is a limited exception in the CCA permitting two parties to enter an agreement with provisions relating to this type of conduct as part of a joint venture. For example, for the purpose of entering a joint venture with Company A, Company B agrees not to engage in keyword bidding that may promote a competitor of Company A against the interests of the joint venture.

However, these arrangements must comply with the strict requirements of the CCA, including that the joint venture is not carried on for the purpose of substantially lessening competition and that the relevant cartel provisions are reasonably necessary to undertake the joint venture. As there is a fine line between undertaking a joint venture and engaging in cartel conduct, independent legal advice should be sought as to whether a current or proposed joint venture is exempt from the cartel conduct provisions.

Conclusion

Businesses should review any existing agreements that may relate to keyword advertising to ensure these agreements are compliant with Australia’s cartel conduct regime. A review should particularly include agreements pertaining to intellectual property rights, which often include provisions relating to keyword advertising.

Please contact a member of our corporate advisory team if you need assistance with the matters discussed in this article, or advice on any other matters relating to competition and consumer law.

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