Google settles rogue drug ad claims for $500 million

Google has agreed to settle a high-profile dispute with the U.S. Department of Justice, paying $500 million for taking ads from rogue online Canadian pharmacies in violation of federal law.

The settlement, one of the largest ever in the United States according to the Justice Department, covers the gross revenue received by Google as a result of Canadian pharmacies advertising through Google's AdWords program, and the gross revenue made by those pharmacies from their sales to U.S. consumers.

"The Department of Justice will continue to hold accountable companies who in their bid for profits violate federal law and put at risk the health and safety of American consumers," said Deputy Attorney General James M. Cole. "This settlement ensures that Google will reform its improper advertising practices with regard to these pharmacies while paying one of the largest financial forfeiture penalties in history."

In May, the company disclosed a $500 million charge taken against its first-quarter results to cover potential charges related to the Justice Department investigation. This morning, in its first comments on the case, Google expressed contrition about its actions, and said it has changed the way its accepts ads for pharmacies.

"We banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago," a spokesman for the company said in an e-mail. "However, it's obvious with hindsight that we shouldn't have allowed these ads on Google in the first place."

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Under the terms of the agreement with the Justice Department, Google acknowledged that it "improperly assisted Canadian online pharmacy advertisers to run advertisements that targeted the United States through AdWords." In addition to the fine, Google agreed to several compliance and reporting measures "to insure that the conduct described in the agreement does not occur in the future."

The Justice Department's investigation began with an international chase of a fugitive, who had allegedly perpetrated a multimillion-dollar fraud. According to the agency, the fugitive, who fled to Mexico, began advertising the unlawful sale of drugs through AdWords. Mexican authorities apprehended the fugitive, turned him over to the U.S. Secret Service, at which point he began cooperating, detailing his use of AdWords. As part of the investigation, the government created "undercover websites" to advertise illegal drug sales using AdWords.

Regulators investigated whether Google violated the Federal Food, Drug and Cosmetic Act and Controlled Substances Act by allowing Canadian Internet pharmacies to place ads through AdWords targeting consumers in the United States. The agency determined that those ads led to the "unlawful importation of controlled and non-controlled prescription drugs into the United States." Moreover, the agency said that Google was aware "as early as 2003" of the illegality of pharmacies shipping both controlled and non-controlled prescription drugs into the United States from Canada.

Congress created those laws to prevent importation of drugs that have not been approved by the U.S. Food and Drug Administration. The Justice Department also noted that despite the Canadian regulatory rules regarding prescription drugs, pharmacies that ship those drugs to the United States are not subject to that country's regulatory authority. What's more, the agency noted, many of those online pharmacies sell drugs obtained from countries other than Canada "which lack adequate pharmacy regulations."

The Justice Department was clear that it wanted to send a message with its fine that it won't tolerate companies abetting rogue pharmacies selling potentially dangerous drugs to Americans.

"It is about taking a significant step forward in limiting the ability of rogue on-line pharmacies from reaching U.S. consumers, by compelling Google to change its behavior," said Peter F. Neronha, U.S. Attorney for the District of Rhode Island, whose office conducted the investigation. "It is about holding Google responsible for its conduct by imposing a $500 million forfeiture, the kind of forfeiture that will not only get Google's attention, but the attention of all those who contribute to America's pill problem."

The Justice Department noted that Google took steps in blocking pharmacies from countries other than Canada from advertising in the United States through AdWords. But the company continued to accept ads from Canada, despite being "on notice." Moreover, Google was aware that Americans were buying prescription drugs based on online consultations rather than valid evaluations from a patient's doctor. And, according to the agency, Google knew that those patients were willing to pay premiums for prescription drugs because their could obtain them without a valid prescription.

Perhaps most damning, Google provided customer support to some of those pharmacies from 2003 to 2009 to help them place and optimize their ads and improve the effectiveness of their Web sites.

Google began addressing the issue in 2009, requiring online pharmacy advertisers to be certified by the National Association of Boards of Pharmacy's Verified Internet Pharmacy Practices Sites program. The trade group, among other things, doesn't certify Canadian online pharmacies. Google also retained an unnamed independent company to beef up its detection of rogue pharmacies advertisers.

Updated at 10:40 a.m. PT with details and analysis.