Google to pay $500 Million Regarding Pharmacy Advertising; What is Next?

August 25, 2011By John R. Fleder

By William T. Koustas & John R. Fleder

Google, Inc. (“Google”) and the Department of Justice (“DOJ”) (acting in concert with FDA’s Office of Criminal Investigations) have settled the government’s criminal investigation into Google’s AdWords program, which displayed advertisements on websites for online Canadian pharmacies.  The government contends that these advertisements resulted in the unlawful importation of controlled and non-controlled prescription drugs into the United States.  Google has agreed to pay $500 million as a civil forfeiture in order to resolve this matter.

The government claims that, since 2003, Google was aware that online Canadian pharmacies were using Google’s AdWords program to place advertisements on websites to illegally sell prescription products to U.S. consumers.  In the just released Non-Prosecution Agreement (“the Agreement”), the government acknowledges that in 2009, Google took steps to prevent pharmacies outside the U.S. from advertising on AdWords.  However, the government contends that for six prior years Google failed to take the same actions to prevent Canadian pharmacies from placing advertisements on Google in order to sell drugs to U.S. consumers.  Indeed, the government claims that Google actively assisted some online Canadian pharmacies to target their advertisements to U.S. consumers.  The government claims that the “shipment of prescription drugs from pharmacies outside the United States to customers in the U.S. typically violates the Federal Food, Drug, and Cosmetic Act and in the case of controlled prescription drugs, the Controlled Substances Act.”

The Agreement also states that once Google became aware of the government’s investigation in 2009, Google required online pharmacies to engage the National Association of Boards of Pharmacy to certify that online pharmacies seeking to advertise on AdWords were accredited through its Verified Internet Pharmacy Practice Sites (“VIPPS”) program.  According to the Agreement, the VIPPS program conducts site visits as part of the its certification process, has “stringent standards” against the issuance of prescriptions based on online consultations, and does not certify Canadian online pharmacies.  Google also hired a third-party company to detect pharmacy advertisers’ attempts to exploit flaws in the AdWords screening system designed to prevent foreign online pharmacies from advertising to U.S. customers without Google’s knowledge.  In fact, Google has sued online pharmacy advertisers that have violated Google’s terms of use for advertisers.

In addition to paying $500 million, Google has agreed to take a number of remedial steps that are outlined in the Agreement.  These steps are intended to prevent online foreign pharmacies from using AdWords to advertise to U.S. customers.

The government agreed to release Google from any further civil, administrative or equitable claims relating to this issue; however, it is fair to ask: why would Google enter into this Agreement and what did it really get from it?

The first tangible benefit to Google is that it has avoided a likely criminal prosecution.  It is quite clear that the DOJ was conducting a criminal investigation of Google.  What is not clear is the charges that DOJ was considering.  The Agreement does mention that Google’s supposed illegal conduct violated both the Federal Food, Drug, and Cosmetic Act and the Controlled Substances Act.  DOJ may well have threatened Google with other charges such as criminal conspiracy and/or RICO violations.  One cannot tell what DOJ threatened from the public documents.  However, one can certainly see that Google agreed to pay an amount that seems on its face to be quite large even for a company the size of Google.  Indeed, the money Google has agreed to forfeit represents far more than the money Google realized in profits, or even than the gross amount it received in revenue from the Canadian pharmacies.  It appears that Google has agreed to forfeit an amount that also includes the revenue that the Canadian pharmacies derived from sales to U.S. consumers even though Google presumably received only a small fraction of that amount in revenue.

Thus, it is a fair assumption that Google agreed to this settlement because the DOJ threatened a criminal prosecution against Google, and possibly even some of its executives, that if brought would have caused Google harm that was worth far more than the $500 million the company forfeited to the government.

This settlement also raises the important question of whether this Agreement will be used as a precedent against other companies.  Will the government pursue other organizations that do not themselves sell FDA-regulated products but which do publish advertisements for companies that sell products to U.S. consumers?  Will the government generally take the view that it will seek a monetary judgment that exceeds the revenue derived by the company with which the government settles?  Is the government’s pursuit of this case due solely to the megasize of Google?  Will the government pursue other entities this way even if those entities are not involved in the sales of pharmaceutical products through foreign online marketing to the U.S.?  Unfortunately, there is nothing in the public filings that provides clear answers to these questions.

Categories: Enforcement