Google Investor Files Derivative Lawsuit over AdWords Settlement

A Google shareholder has filed suit against the company over last week’s $500 million settlement with the U.S. Department of Justice (DOJ). According to a report on, the <"">Google shareholder lawsuit claims the company and its officers breached their fiduciary duty by facilitating illegal imports of prescription drugs through the sale of internet ads to Canadian online pharmacies through its AdWords program.

The Google settlement with the DOJ was announced last Friday. According to a statement from the DOJ, the $500 million settlement 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. Google was aware as early as 2003, that generally, it was illegal for pharmacies to ship controlled and non-controlled prescription drugs into the United States from Canada, the DOJ said.

According to Bloomberg, the Google shareholder lawsuit was filed in federal court in San Jose, California. The derivative lawsuit was filed on behalf of the company and its investor by a Google investor from Pennsylvania. The complaint alleges that Google’s annual reports from 2003 to 2009 were false and misleading because the company didn’t disclose revenue from the improper advertising. It further alleges that Google’s board and CEO Larry Page knew or should have known it was illegal for pharmacies outside the U.S. to ship prescription drugs into the country.

According to the DOJ prosecutor who led the investigation, evidence indicated Page did know Google was engaging in illegal activity.

“Larry Page knew what was going on,” Peter Neronha, the U.S. Attorney in Rhode Island, said in an interview with the Wall Street Journal. “We know it from the investigation. We simply know it from the documents we reviewed, witnesses that we interviewed, that Larry Page knew what was going on.”

Neronha asserts that Google’s efforts to prevent such advertising in the years leading up to the probe – including the use of third-party services to screen out sites that didn’t comply with U.S. law – were mere “window dressing.” He also told the Journal that Google employees helped undercover Justice Department agents in the sting operation evade controls designed to stop companies from advertising illegally. Neronha said that the illegal AdWords sales were not the result of “two or three rogue employees at the customer service level doing this on their own,” and represented a “corporate decision to engage in this conduct.”

According to letters reviewed by the Journal, Google was warned in 2003 and 2008 by U.S. pharmaceutical drug regulators that importation of drugs from abroad was illegal. According to the DOJ, Google allowed ads from Canadian online pharmacies to target U.S. consumers until 2009, when it became aware of the government investigation.

Google issued the following statement after the DOJ settlement was announced:

“We banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago. However, it’s obvious with hindsight that we shouldn’t have allowed these ads on Google in the first place.”

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