Google settles pharmacy ad probe for $500 million

Posted Aug. 24, 2011, at 7:15 p.m.

PROVIDENCE, R.I. — Google Inc. has agreed to pay $500 million to settle a U.S. government investigation into the Internet search leader’s distribution of online ads from Canadian pharmacies illegally selling prescription drugs to American consumers.

The settlement means Google will not face criminal prosecution for accusations that it improperly profited from ads promoting Canadian pharmacies that illegally imported drugs into the United States, Rhode Island U.S. Attorney Peter F. Neronha said. It is the first time an Internet search engine is being held responsible for the illegal distribution of drugs.

“It sends a clear message to both Google and to others that contribute to America’s pill problem that they will be held to account for endangering the health and safety of the residents of this district and to persons all across the United States,” said Neronha, who described the forfeiture as one of the largest in U.S. history.

The settlement delivered a stinging rebuke for Google, whose motto is “don’t be evil.” In announcing the settlement, authorities left little doubt that Google had misbehaved. From its vantage point, Google crossed into a shady area of prescription-drug advertising in pursuit of higher profits, which have boosted its stock price and enriched its employees since the company’s initial public offering in 2004.

In that sense, the potential damage to Google’s reputation may be more troubling to the company than the amount of money it’s paying to sweep the problem under the rug. The $500 million is a sum Google can easily afford; it had $39 billion in cash at the end of June.

The figure represents the gross revenues Google collected in ad buys from hundreds of Canadian pharmacies, plus the earnings generated from the illegal drug sales to American consumers from 2003 to 2009, federal investigators said.

Google said in a statement that it should not have allowed Canadian pharmacies to market prescription drugs to American consumers.

“We banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago,” the statement said. “However, it’s obvious with hindsight that we shouldn’t have allowed these ads on Google in the first place.”

The company declined further comment.

Google shares were up slightly Wednesday, finishing the day trading at $523.

Federal officials said Google knew as early as 2003 that its ad system was allowing Canadian pharmacies to make illegal sales. The transactions included selling prescription drugs without valid prescriptions from a licensed medical practitioner at a premium, prosecutors said.

Shipping prescription drugs into the U.S. from abroad violates drug and other laws, investigators said. Prescription drugs shipped into the U.S. from Canada are not subject to oversight by Canadian regulatory authorities and many sell drugs from countries with inadequate pharmacy regulations, prosecutors said.

A separate U.S. Food and Drug Administration investigation into drugs that claimed to be manufactured in Canada found that 85 percent of the drugs examined came from 27 different countries, including some that were found to be counterfeit, said Kathleen Martin-Weis, acting director of the FDA’s Office of Criminal Investigations.

Investigators noted that Google did not allow online pharmacies from any other country aside from Canada to advertise to American consumers.

Google is no longer letting Canadian online pharmacies advertise to U.S. consumers.

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