Google Inc. has agreed to pay $500 million for carrying advertisements by online Canadian pharmacies targeting consumers in the United States, according to the U.S. Justice Department.
The ads resulted in the illegal importation of prescription drugs, the Justice Department said.
The $500 million represents the money Google made from selling the drug ads, plus the revenue earned by Canadian pharmacies from sales to American customers.
A government investigation found that Google knew as early as 2003 that many online Canadian pharmacies were selling medicine to Americans without valid prescriptions, the Justice Department said. As part of the settlement, Google must follow a number of "compliance and reporting measures" to ensure tighter control of its advertising arm, the federal agency said.
"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," said Deputy Atty. Gen. James M. Cole in a statement Wednesday.
The fine did not come as a complete surprise — Google disclosed in May it was earmarking $500 million for a potential settlement of a government investigation into its advertising business.
The Justice Department said in its Wednesday statement, "Google acknowledges that it improperly assisted Canadian online pharmacy advertisers."
In its own statement, Google said it had given up the practice.
"While we banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago, it's obvious with hindsight that we shouldn't have allowed these ads on Google in the first place," the company said.
In an email, a Google spokesperson said the company would not comment beyond the statement.
The settlement resolves a major criminal probe at a time when the Mountain View, Calif., company is facing legal problems on a number of fronts, including antitrust investigations by the Federal Trade Commission and by regulators in Europe. A number of tech rivals have also sued Google over patent infringements.
Jason Helfstein, an Internet research analyst at Oppenheimer & Co., said that the penalty would not affect the company's other legal troubles. "One has nothing to do with the other," he said. "They are completely separate issues."
Helfstein said that the penalty, while large, would cause little financial strain on the company. But what is more distressing for Google is the potential blow to its reputation.
"The most surprising thing isn't the amount of money, it is that Google made a mistake with its ads, and Google doesn't usually make mistakes," he said.
Analysts said that online advertising is inherently difficult to monitor.
Sameet Sinha, senior analyst with B. Riley, said overseas online pharmacies tend to be armed with heavy advertising budgets and frequent, rapid-fire ad delivery, making them difficult to track. "Internet advertising has many dark areas," Sinha said. "It's a lucrative business, and the returns for them are very high."
The temptation for foreign pharmacies to advertise online may be especially high as many American turn to the Internet to buy drugs discounted as much as 85% compared with drugstore prices in the United States.
The import of prescription drugs is almost always illegal, the Food and Drug Administration said. However, the agency said it has the discretion to not take action against buying medicine from foreign countries for personal use, depending on the circumstances.
The Google settlement will probably have little effect on smaller ad platforms online, said Jim Friedland, senior research analyst with Cowen Group.
Google's prominence makes it an "obvious target" for regulators, he said.
"They're just a lightning rod for litigation," Friedland said. "Regulators aren't going to go after smaller ad platforms. They'll always go after the biggest."