May 23rd, 2011

Google Was Warned on Rogue Drug Ads

The Wall Street Journal

Google Inc. was warned repeatedly by a group of state regulators and industry watchdogs that many of the online drugstores advertising on its network were violating U.S. laws, according to interviews and documents reviewed by The Wall Street Journal.

Federal prosecutors have been looking into whether Google employees knowingly accepted business from illegal drug sellers which, legal experts say, could open it up to allegations that it aided illegal online activity.

As part of the criminal investigation, undercover agents for the Food and Drug Administration contacted Google posing as representatives from rogue Internet pharmacies, according to people familiar with the matter.

It’s unclear what kind of evidence, if any, was gathered through the operation and why Justice Department prosecutors, who are working with the FDA, are apparently training their attention on Google, at least so far.

A Yahoo Inc. spokeswoman and Microsoft Corp. spokesman said they believed their companies were not under investigation related to pharmacy ads on their search engines.

The Microsoft spokesman said that in recent years the company has spoken with industry and government officials, including Justice Department representatives, about ways to combat online advertising by illegal pharmacies and changed its practices as a result.

Google and its smaller rivals in recent years earned around $1 billion a year from online pharmacies and health care companies that paid to place text ads on the search engines, according to research firm eMarketer.

It is unclear how much of that revenue was from illicit pharmacies. About 96% of Internet drug outlets appeared to be violating pharmacy laws or standards, according to a 2008 study by the National Association of Boards of Pharmacy, or NABP, a group representing state regulators in the U.S. and Canada.

The problems included failing to require a doctor’s prescription, improperly selling controlled substances or peddling fake or tainted drugs. Many illicit pharmacies appear to be based in Canada but often ship drugs from places like India, Barbados or China, according to the FDA.

Earlier this month, Google said it was setting aside $500 million to potentially resolve a Justice Department investigation. It didn’t reveal the focus of the probe, saying only that it involved “the use of Google advertising by certain advertisers.”

Google is currently in talks with federal prosecutors to settle the case before it reaches court, according to people familiar with the matter. The Justice Department and FDA declined to comment.

The company declined to comment for this article. But in a Sept. 21, 2010 blog post, Google lawyer Michael Zwibelman wrote that the company has struggled with the problem of online pharmacies for years.

“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,” he wrote.

For a decade, Google and the other search engines declined to use a verification program created in 1999 by a group representing U.S. state pharmacy regulators to weed-out rogue online drug sellers. Instead, Google used a third-party company that pharmacy regulators and others say often failed to catch illicit drug sellers.

“On the basis of our analysis, I think they were turning a blind-eye,” said Bryan Liang, a California Western School of Law professor who published a 2009 report that found Google and others were profiting from online ads paid for by illegal drug sellers. “They were making a lot of money on this.”

Outside groups and lawmakers raised concerns with Google about online pharmacy advertising on numerous occasions during the past eight years.

In 2003, the NABP wrote a letter to Google warning about advertising from online drug outlets that weren’t verified by a NABP screening program. The organization was “deeply concerned that these rogue Internet sites could be a front for criminals seeking to introduce adulterated medications, counterfeit drugs, or worse, to the American market,” wrote Mary Dickson, the NABP’s associate executive director. The NABP says Google didn’t respond.

In Congressional testimony in 2004 and 2005, Google executives said they used “trusted” third-party verification services to ensure they weren’t accepting ads from illicit drug sellers, and that the company had a dedicated team enforcing its policies for online pharmacy ads.

In 2006, Google began using a company called LLC to vet its pharmacy advertisers. Yahoo and Microsoft later hired the same company.

But several groups subsequently told Google and the other search engines the system failed to stop illicit drug sellers from advertising on its network.

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