Google to Settle with U.S. Government for $500 Million

Today, regulators will announce a $500 million settlement with Google over charges related to advertisements for illegal online pharmacies. The pharmacies appearing in Google ads were operating outside the law, leading to a Department of Justice investigation into Google’s advertising practices – an investigation which decreased Google’s profits by 22%, reports the The New York Times.

The investigation began in May, with government officials trying to determine how illegal ads such as these continually showed up in Google’s search results. Google had previously noted in the fall of 2010 that it was struggling with the problem, equating it to a “cat-and-mouse game:”

…As we and others build new safeguards and guidelines, rogue online pharmacies always try new tactics to get around those protections and illegally sell drugs on the web. In recent years, we have noticed a marked increase in the number of rogue pharmacies, as well an increasing sophistication in their methods. This has meant that despite our best efforts—from extensive verification procedures, to automated keyword blocking, to changing our ads policies—a small percentage of pharma ads from these rogue companies is still appearing on Google.

But complaints that it just didn’t know how to stop the situation have not been good enough for the U.S. government, which is now holding websites liable for any illegal advertisements shown on their pages.

Obviously, such a decision has far-reaching consequences beyond those of just the illegal pharmacies, as Google faces threats from a number of illegal and malicious entities who want to leverage its search engine to expose unsuspecting users to their ads. Traditionally, Google itself has filed lawsuits against advertisers it suspected of breaking its rules, but this has clearly not been enough of a deterrent.

At the time of the government investigation, Google set aside $500 million in advance of the government’s ruling in the matter, which trimmed its net income to $1.8 billion, or $5.51 a share, in the period.

U.S. Attorney Peter Neronha of Rhode Island is holding the press conference on Wednesday to announce the final outcome.  The settlement means Google will not face further criminal prosecution for profiting from ads promoting illegal pharmacies.

Update, from the DOJ press release:

According to Deputy Attorney General James M. Cole; Peter F. Neronha, U.S. Attorney for the District of Rhode Island; and  Kathleen Martin-Weis, Acting Director of the U.S. Food and Drug Administration’s Office of Criminal Investigations (FDA/OCI), this forfeiture is one of the largest ever in the United States, and represents “the gross revenue received by Google as a result of Canadian pharmacies advertising through Google’s AdWords program, plus gross revenue made by  Canadian 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 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.”

U.S. Attorney Neronha, added that this settlement was 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,” and that this kind of forfeiture “will not only get Google’s attention, but the attention of all those who contribute to America’s pill problem.”