Google claims to rank search results by relevance, but the search engine engages in deceptive conduct by selling off the top positions to commercial partners, a Sydney court has heard.

The Australian Consumer and Competition Commission (ACCC) is taking world-first legal action in the Federal Court against Google Inc over allegedly deceptive conduct related to sponsored links on its Web sites.

The ACCC has brought a two-pronged case against Trading Post and Google -- including subsidiaries Google Australia and Google Ireland -- for potentially misleading consumers.

The consumer watchdog alleges Google does not do enough to differentiate "organic" search results -- those ranked by relevance -- from sponsored links which appear at the top of the results page.

In particular, the ACCC claims Trading Post breached the Trade Practices Act in 2005 when it used the names of NSW car dealerships Kloster Ford and Charlestown Toyota as hyperlinks to its own site.

These hyperlinks appeared in a shaded area titled "Sponsored Links" at the top of the results page, but appeared to be the dealerships' official sites, or at least affiliated with the dealerships.

Christine Adamson SC, acting for the ACCC, said Trading Post had no such affiliation or link to either dealership.

The ACCC has previously said these dealerships compete with Trading Post for local car sales.

Trading Post chose the dealership names through AdWords, a Google commercial program that sets up hyperlinks.

AdWords linked any search on the dealerships' names to the Trading Post site through a link embedded in the search results.

Trading Post then paid Google "per click", Adamson said.

"That's how we found out about it," she told Justice Jim Allsop.

"Kloster Ford was so outraged by the conduct that they contacted the (consumer) advocate."

The second thrust of the case concerned Google encouragement of this deceptive conduct by allowing sponsored sites to appear at the top of the list of search results, and in the same format as the organic search results, said Adamson.

"Google represents to the world that its search engine is so good that it can rank, out of the multitudinous entries of the world wide web, these entries in order of relevance of the user's query," she said.

"Part of that (reputation is) that it's not influenced by money, it's influenced by relevance."

Justice Allsop asked: "And that's misleading because there would be results put at the top which are placed there not by reference to relevance but because people have paid to have that?"

"Yes," Adamson agreed.

Google's counsel Anthony Bannon SC successfully argued for orders that the ACCC file summaries of its case against each of the parties, with Justice Allsop labelling its current claim "opaque and repetitious".

The judge also adjourned the ACCC's notice of motion to serve outside the jurisdiction, pending clarification on the precise involvement of Google Australia and Google Ireland.

Bannon argued the case should only be brought against Google, and not its subsidiaries, with the joining of foreign parties bringing the complications of foreign laws.

Justice Allsop adjourned the case for further directions in the same court on October 4.