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September 09, 2011

Google's $500 Million Fine For Assisting In Evading Drug Importation Laws

This story is two weeks old, and was a sidebar item, but I thought it should get more prominence. The media didn't seem to think so.

Google will pay $500 million to settle federal government charges that it has knowingly shown illegal ads for fraudulent Canadian pharmacies in the United States, the Justice Department announced on Wednesday.

The federal investigation, which was first revealed in May, found that Google was aware that some Canadian pharmacies that advertised on its site failed to require a prescription for substances like the painkiller Oxycontin and the stimulant Ritalin. Google continued to accept their money and assisted the pharmacies in placing ads and improving their Web sites, according to the Justice Department.

Illegal online pharmacies have been a challenge for regulators, because the Internet makes it easy for them to operate under the radar and emerge under different names when they get shut down.

Search engines like Google drive much of the traffic to these sites, say researchers who study online pharmacies. Web sites are liable for advertising that breaks federal criminal law.

Since 2009, when it became aware of the investigation, Google has taken significant steps to chase illegal pharmacies from its site.

Google actually helped these drug-sellers optimize their ads. And note they only began to "take significant steps" once they became aware of the investigation.

$500 million may seem like a steep fine -- except it's mostly not really a fine. It's a disgorgement of their profits from running these ads. Meaning, having paid the fine, they have not really suffered; they have merely lost revenue which, by their own agreement, was unlawfully procured in the first place.

A fine would actually put the malefactor in a worse place than when he began. If you only fine a bank robber the profits he makes from robbing banks, you really aren't punishing him. It's not a disincentive -- if you catch him, he gives up his takings from the bank, but that just leaves him in his starting position, none the worse off.

So why just a loss of improperly-gained profits for Google?

The forfeiture, one of the largest ever in the United States, 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.

Only that last part -- coughing up the profits made on the sales themselves -- actually punishes Google. What fraction of the fine is that?

Given that Google knew damn well that what it was doing was contrary to the law, it seems a light penalty. The government brags about the size of the fine, but the size of the fine mostly just indicates how ridiculously profitable it was for Google to ignore the law for six years or so.

And given the fact that Google is in the bag for the Democratic Party, yes, I do wonder if they were let off with a slap on the wrist. The Obama Administration seems to have one rule for businesses generally -- punish 'em -- and another rule entirely for businesses helpful to their political ends.

The dirty little secret that the Media-Government Complex doesn't want you to know is that while Republicans are pro-business generally, Democrats are pro-business in a targeted fashion.

Chuck Schumer isn't taking donations hand over fist from the banking industry because he's riding herd on them.

If a party is anti-business as a general matter, what special incentives does it have to offer its favorites to keep that precious corporate cash flowing?

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posted by Ace at 02:12 PM

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