The consumer watchdog has lost its case against Google that claimed the company engaged in misleading and deceptive conduct by not properly distinguishing between ads and search results.

In a judgment handed down in the Federal Court this morning, Justice John Nicholas also dismissed the Australian Competition and Consumer Commission's claim that Google was liable for advertisers using competitors' names and trademarks in their "sponsored links".

The ACCC sued Google and Trading Post in 2007 after it discovered the latter was placing advertising on Google's search engine that used competitor car dealers' names. This meant that those searching for the car dealers were instead directed to the Trading Post's site when they clicked the ad.

Justice Nicholas declared the Trading Post, owned by Sensis, engaged in misleading or deceptive conduct by publishing an advertisement for Kloster Ford. People who clicked on the sponsored link for Kloster Ford were actually taken to the Trading Post website, which had no information about the Newcastle car dealer or the cars it had for sale.