Friday, August 26, 2011

Google Pays $500M to Avoid Prosecution for Running Canadian Pharmacy Ads

Google, Inc. (NASDAQ: GOOG) has entered a Non-Prosecution Agreement ("NPA") with the United States Department of Justice ("DOJ"), whereby Google will disgorge its AdWords gross revenues for running Canadian pharmacy ads to U.S. consumers, and the DOJ will forgo criminal prosuection against Google.

United States has passed very strict legislations, including the Food, Drug, and Cosmetic Act (21 U.S.C. § 331) and the Controlled Substance Act (21 U.S.C. § 952), to regulate foreign pharmacies' sales of prescription drugs to U.S. customers. Despite these regulations, U.S. residents have purchased large volumes of prescription drugs from foreign sources becuase the prices tend to be some 85 percent lower than U.S. drugstore prices.

In May 2011, DOJ initiated an investigation accusing that Google has been running online advertisements for Canadian pharmacies which sell to U.S. consumers counterfeit drugs, or dispense drugs without requiring medical prescription. By entering into NPA, Google put an end to the government investigation and prosecution. However, this settlement did not come cheap for Google, as it has agreed to pay $500,000,000 (its gross revenue generated from selling AdWords advertisements to Candian pharmacies) to the U.S. government. As well, Google has accepted corporate responsibility "that it improperly assisted Canadian online pharmacy advertisers to run these advertisements that geo-targeted the United States through AdWords," and that Google was aware of these problems as early as 2003.

Launched in year 2000, AdWords is currently Google's primary advertising product and its main source of revenue. AdWords offers various advertising setups, including pay-per-click, cost-per-thousand. Google promotes its advertising service saying:
"Google AdWords is a service that lets you create and run ads for your business, quickly and simply.… AdWords ads are displayed along with search results when someone searches Google using one of your keywords. Ads appear under 'Sponsored links' in the side column of a search page, and may also appear in additional positions above the free search results. That way, you'll be advertising to an audience that's already interested in your business."

Google, Inc. was founded in 1998 by Sergey Brin and Larry Page while they were PhD candidates at Stanford University. The company is currently headquartered in Mountain View, California, yet has become one of the most publicized multinational company. In 2010, Google generated $29 Billion in revenue--$28 Billion of which was from advertising revenues--and showed profits of $8 Billion.

The materials for this blog were gathered from various sources including San Francisco Chronicle, DOJ press release, Los Angeles Times, Fox Business and Wikipedia. For additional information, run a search on Google.

Robin Mashal is a California litigation attorney. He can be reached at (310) 286-2000.