Google close to settling with DOJ on drug ads


The internet giant will soon settle a DOJ criminal investigation on allegations it made hundreds of millions accepting ads from online pharmacies (mostly foreign) that break U.S. laws. Google claims it had tried to filter out these ad placements, but they found ways around it.

In a regulatory filing earlier this week Google disclosed it was setting aside $500 million to potentially resolve the case with DOJ. A payment of that size would be among the highest penalties paid by companies in disputes with the U.S. government, noted WSJ.

Google gave few details in its filing about the probe, saying only that it involved “the use of Google advertising by certain advertisers.”

The federal investigation has examined whether Google knowingly accepted ads from online pharmacies, based in Canada and elsewhere, that violated U.S. laws.

Search engines can be liable if they are found to be profiting from illegal activity. In December 2007, Google, Microsoft and Yahoo agreed to pay a combined $31.5 million fine to settle civil allegations brought by DOJ that they had accepted ads from illegal gambling sites.

Prosecutors can charge such acts under a number of different statutes. The distinction for Google would be that the illegal activity allegedly took place through its paid ad service, not just the results that its search engine produces. Google generated nearly $30 billion in total ad revenue in 2010, largely from its AdWords system.

There are scores of websites that offer to sell prescription drugs. Some violate U.S. laws by selling counterfeit or expired medicines or dispensing without a valid doctor’s prescription. One question under investigation is the extent to which Google knowingly turned a blind eye to the alleged illicit activities of some of its advertisers—and how much executives knew, the WSJ story said.

Google says it has been dealing for years trying to sift out “rogue online pharmacies.” In 2003 Google says it banned ads from U.S. companies that offer drugs like Vicodin and Viagra without a prescription. That, after Yahoo and Microsoft made similar moves as the FDA began publicly pressuring sites to accept only drug ads from licensed Internet pharmacies. In September 2010 Google filed a federal suit in San Jose seeking to block individuals running illegitimate pharmacies from advertising on its search engine and to recover damages.

However, Google said in 2004 it would continue carrying ads for Canadian pharmacies that send medicines to U.S. customers. The decision riled some U.S. druggists and drew criticism from regulators, said WSJ.

After the FDA began its latest investigation, Google made changes last year to its policies for drug ads. Google said in February 2010 it would begin allowing ads only from U.S. pharmacies accredited by the National Association of Boards of Pharmacy and from online pharmacies in Canada that are accredited by the Canadian International Pharmacy Association.

“Rogue pharmacies are bad for our users, for legitimate online pharmacies and for the entire e-commerce industry—so we are going to keep investing time and money to stop these kinds of harmful practices,” Google lawyer Michael Zwibelman wrote on the company blog at the time.

The current investigation comes as Google is facing multiple investigations into possible antitrust and privacy violations in several nations.

RBR-TVBR observation: Google obviously makes a good deal of money from pharmacy ads—legal ones or not. The sheer volume of ad placements coming in would be tough to police, and costly to check each one’s legitimacy. The good news for Google is it does have a track record of trying to stop the advertisers. We think the key issue is how easy it is for the company to track ads via keywords, or the general technology it has in place to do so. If it is proven easy and quick to identify and remove these ads (read: automatically), they may be paying a lot of that $500 million set aside.