Google Inc. (NASDAQ: GOOG) is set to challenge an Australian Federal Court ruling finding that the leading search engine engaged in false and misleading advertising on its site.

Last week the Australian Competition and Consumer Competition successfully appealed against a Federal Court decision that ruled that Google was not responsible for the misleading advertisements companies put up on Google. The Federal Court found Google engaged in misleading conduct by showing ads from companies that used keywords that referred to a competitor.

Some keywords for companies like Honda, Alpha Dog Training, Just 4X4 Magazine and Harvey World Travel were bought by competitors. The keywords could be used by competitors to block consumers from seeing advertisements from the concerned company. For example if a user searched for Honda in Google and an advertisement was at the top of the search results, the ad wouldn't necessarily lead the user to the Honda website but to a competitor's website.

The full bench of the Federal Court found that "Google is in fact much more than a mere conduit."

The court found Google was more involved in the interaction of consumers and advertising through the use of Google's algorithm. Sources close to the matter say that Google is expected to challenge the High Court decision.

"It is the first time that a court has found us to be partially responsible," the source told The Australian. "This judgment has very strong implications for every online advertiser and every online platform. It's not only about Google."

The decision could have serious implications for search engine providers and on the online ad industry. Search engine providers could be held responsible for misleading third-party advertising on their Web sites.

"The case is really important because if the ACCC win it's going to put a great burden on all online ad networks as it will make them liable for the actions of their advertisers," business writer and blogger Paul Wallbank told Smart Company, referring to the Australia Commission on Consumer and Competition.

"We shouldn't forget that a Telstra business unit started this by acting illegally - and which they were successfully prosecuted for - which illustrates the importance of considering real world laws and ethics before engaging in a digital marketing strategy."

Google may seek the support of other search engine operators including Microsoft which runs Bing, and Yahoo to challenge the ruling.

ACCC Chairman Rod Sims said the Federal Court's findings are a warning to all online advertisers.

"It makes it clear that Google and other search-engine providers which use similar technology to Google will be directly accountable for misleading or deceptive paid search results," Sims said.

"The ACCC brought this appeal because it raises very important issues as to the role of search engine providers as publishers of paid content in the online age."