Report: Google warned repeatedly about online drug ads

Regulators and industry watchdog groups repeatedly warned Google that it was taking ads from rogue online pharmacies in violation of federal law, according to The Wall Street Journal.

Those alleged transgressions likely led to the $500 million charge Google took in its recent quarter to cover potential charges related to resolving an investigation by the Department of Justice. CNET reported yesterday that Google was being praised by the White House for cracking down on illegal Internet pharmacies at the same time the Justice Department was investigating the company.

The Journal reported that federal prosecutors are investigating whether Google employees "knowingly accepted business from illegal drug sellers." That would open the company up to criminal charges of aiding illegal online activities.

What's more, the Journal reported that the Food and Drug Administration conducted a sting operation on Google, posing as "representatives from rogue Internet pharmacies." It's unclear if those inquiries led to any evidence that regulators can use against Google.

Google declined to comment on the report.

So why the intense scrutiny? Regulators care because those rogue pharmacies sell counterfeit drugs or drugs that have expired, and they offer to sell drugs without requiring prescriptions. Those drugs can be both addictive and lethal.

And the repeated warnings likely put Google in an awkward spot. If regulators can prove that the company knowingly took ads from illegal online pharmacies, and did so for several years, the fines could be immense. The Journal story shows a long line of warnings Google received and, for several years, seemed to ignore.

According to the Journal, Google had been warned as early as 2003 that illegal online pharmacies were using its advertising system to place ads on Web pages. That year, the associate executive director of the National Association of Boards of Pharmacy wrote to Google, saying she was "deeply concerned that these rogue Internet sites could be a front for criminals seeking to introduce adulterated medications, counterfeit drugs, or worse, to the American market," according to the Journal.

Five years later, the director of the National Center on Addiction and Substance Abuse at Columbia University, Joseph Califano, a former U.S. health secretary, wrote to then-Google CEO Eric Schmidt that the organization found "prominent displays of ads for rogue Internet pharmacies" when it used Google to search for controlled drugs, according to the Journal. "This suggests that Google is profiting from advertisements for illegal sales of controlled prescription drugs online."

Later in 2008, the NABP contacted Google--along with two other search giants, Microsoft and Yahoo--asking them to stop accepting ads from illegal online pharmacies and to replace the third-party pharmacy verification system, the Journal reported.

And a year later, a California Western School of Law professor published a report, finding that Google and others were profiting from illicit online pharmacy ads. "On the basis of our analysis, I think they were turning a blind eye," the professor, Bryan Liang, told the Journal.

It was also in 2009 that the U.S. Attorney in Rhode Island subpoenaed the third-party pharmacy verification service, PharmacyChecker.com, the company's vice president, Gabriel Levitt, told CNET. He confirmed that regulators were asking questions about Google's selling ads to illegal Internet pharmacies.

Within a year, Google seemed to have taken the matter more seriously. In February, it replaced PharmacyChecker.com with the pharmacy association's verification service. In June, U.S. intellectual-property enforcement coordinator Victoria A. Espinel, who's leading the Obama administration's efforts to fight illegal online pharmacies, applauded Google, along with Yahoo and Microsoft, for voluntarily updating protocols to prevent the sale of ads to rogue pharmacies.

In September, Google sued pharmacy advertisers that tried to game Google's ad system, violating its terms. By December, company executives were at the White House, with executives from Microsoft, Yahoo, Go Daddy, and a few other companies to announce the creation of a nonprofit organization to facilitate sharing information about illegitimate online pharmacies in order to shut them down.

Google is now working to settle the case with the Justice Department.

Updated at 4:25 p.m. with more details and background.