Google to settle online drug ads investigation

May 13, 2011 7:15:22 PM PDT
Mountain View-based Internet search giant Google has set aside $500 million to settle a long-running investigation by state and federal agencies for running online drug ads from companies that are in violation of US law.

Google will not talk about it, but the details are in a quarterly report it filed with the U.S. Securities and Exchange Commission. If that amount is agreed upon, the settlement could be one of the highest amounts involving a federal probe. A half-billion dollars would reduce its profits from the first quarter of 2011 from $2.3 billion to $1.8 billion, a drop of about 22 percent.

At issue is Google running online ads to sell consumers prescription drugs contrary to U.S. laws. Google last year began to crack down on so-called rogue pharmacies that do not require prescriptions.

Consumers are taking a risk buying and taking drugs purchased from the ads the government is trying to purge, according to Michael Ignacio, a pharmacist at Leiter's Pharmacy in San Jose's Rose Garden district. Because imported drugs are not monitored by the U.S. Food and Drug Administration, Ignacio says, their potency and safety cannot be verified.

"You don't know the manufacturing process, you don't know where those drugs are coming from, so that's a huge big hit consumers should really look at and evaluate when they're buying medications online," he said.

It is also unfair competition, Ignacio says, to neighborhood drug stores that are following the law. The price of imported drugs can be 20-30 percent cheaper than in the U.S., he pointed out.

Retired San Jose resident Dominic Guido said he is against online prescription drug sales because he does not know if they are safe. He is in favor of what the U.S. Department of Justice and other agencies are doing to monitor and weed out drug ads from unregulated sources.

"I know it's cheaper to go abroad, but do you know what you're getting? So you save a few pennies, but what are you going to do to your health? I always buy U.S," Guido said.

In its SEC filing, Google said the $500 million payment, "will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows."

Eric Goldman, director of Santa Clara University's High Tech Law Institute, says the $500 million figure is a clue as to how much money Google was making from these ads.

"There are only a limited number of categories where Google makes that much money they might have to disgorge; this is obviously an important revenue line for them and one that's proven to be problematic," Goldman said.

Google has already begun restricting online drug ads in its search results. However, consumers can still find many places to buy drugs online that may or may not be against U.S. law.

If the $500 million figure sticks, it would be one of the heftiest payments ever made to settle a federal dispute.


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