States want Google to crack down on online drug sales

Several state attorneys general are pressing Google to make it harder for its users to find counterfeit prescription medicine and illegal drugs online, marking the second time in the past three years that the firm has drawn government scrutiny for its policies on rogue Internet pharmacies.

Their complaints, conveyed in a letter signed by 24 top state prosecutors, led to private meetings with Google executives earlier this year in Denver and Washington, producing contentious exchanges about the company's practices. Now, while some of the attorneys general are pleased with Google's response to their concerns, others want the tech giant to go further.

At the same time, the company's past practices have raised the ire of shareholders, who have alleged in two little-noticed lawsuits that a lax stance by the company toward prescription drug ads until 2010 put it in legal and financial jeopardy.

Google, which failed to persuade a California judge to dismiss the suits, entered settlement talks last month after attorneys for the shareholders obtained emails showing that top executives warned then-Chief Executive Eric Schmidt and co-founder Larry Page more than a decade ago about the risks of accepting such ads.

Google declined to comment on the shareholder suits. But the company said it has poured resources into trying to stamp out rogue Internet pharmacies, disabling 4.6 million pharmaceutical or health supplement ads that did not meet its standards last year. And since 2010, when it toughened its advertising policy, the number of Web ads placed by unlicensed pharmacies dropped by 99.9 percent, according to Google.

The renewed pressure that Google is facing over illegal pharmaceuticals revives what has long been a thorny issue for the Internet giant. In 2011, Google forfeited $500 million - in addition to changing its advertising practices - to avoid federal criminal charges for its role in helping unlicensed Internet pharmacies market drugs to U.S. consumers.

The episode has also drawn attention to Google's ties with the White House. In a move considered unusual by legal and ethical experts, the Obama administration allowed Google to participate in a White House event on the topic while under federal investigation.

White House spokesman Eric Schultz said the forum highlighted "efforts of various companies, not just Google, to curb rogue online pharmacies." He said the event "had no impact" on the Justice Department case against the company.

In its talks with the attorneys general, Google said it was hiring 120 new employees this year to flag rogue ads and videos. It also said it was eliminating 1,200 predicted search phrases - such as "how to become a drug dealer" - that led people to potentially illegal or dangerous websites.

The steps Google has taken, outlined in a February letter to six attorneys general, have not fully satisfied several of the state prosecutors.

The attorney general leading the charge, Jim Hood of Mississippi, has threatened to pursue legal action if Google does not go further by removing from its search results sites that sell illicit drugs and other illegal products.

"We're trying to make them do right," he said, adding that the company is "making billions" from sites promoting dangerous and illegal content. "And until someone stops them, they're going to continue making billions."

Google spokeswoman Niki Christoff said the company takes "the safety of our users very seriously."

"We've explained to Attorney General Hood how we enforce policies to combat rogue online pharmacies and counterfeit drugs," she said. "We disabled millions of ads for illegal online pharmacies in 2013 alone."

The internal emails, newly disclosed as part of the shareholder litigation, show how long top Google executives knew of the risks before curtailing ads from unlicensed pharmacies in 2010.

"We are the only player in our industry still accepting these ads," Sheryl Sandberg, then a vice president of global online sales and operations for Google, wrote in a November 2003 email to Schmidt, Page and co-founder Sergey Brin. "I continue to think that although there is some commercial harm to shutting down these ads, the PR/brand risk we are taking by being out there on our own may not be worth it."

In another email to Schmidt, Brin and Page, Sandberg raised the revenue losses Google could face if it shut down the advertising. The exact figures were redacted from her note, which began, "We do not make these decisions based on revenue, but as background, [redacted]."

Sandberg, who is now the chief operating officer at Facebook, declined to comment.

Federal prosecutors later estimated that the company earned hundreds of millions of dollars over an eight-year period from unlicensed pharmacies.

The inquiry by the U.S. attorneys office in Rhode Island and the Food and Drug Administration, which began in 2009, found that some Google employees were helping websites place ads that skirted the company's advertising policies.

It was not until the federal investigation that the company moved to cut off such vendors, announcing in 2010 that it would accept ads only from licensed pharmacies in the United States.

That year, Google also volunteered to help launch a new private-sector-backed nonprofit group to assist law enforcement in identifying illegal Internet pharmacies, a project spurred by White House officials.

The initiative, the Center for Safe Internet Pharmacies, was announced at a December 2010 White House event to discuss the risks of pirated goods online. Administration officials praised the tech industry at the event for helping crack down on illicit online drug sales.

"This group of companies has taken an extraordinary and unprecedented step to combat illegal online pharmacies," said Victoria Espinel, the White House's intellectual-property enforcement coordinator at the time, who asked executives from Google and other companies to stand up and be recognized.

Attorney General Eric Holder Jr. delivered remarks, calling the new partnership "an important step forward."

He was joined at the event by then-Assistant Attorney General Lanny Breuer and a top official from the FDA - senior leaders of the two agencies then investigating Google's drug advertising practices.

Richard Painter, who was ethics counsel at the White House during the George W. Bush administration, expressed surprise that Google was allowed to participate in the forum.

"We absolutely would not have permitted it," said Painter, now at the University of Minnesota Law School, when asked last week about the forum. He said he would not have been concerned about Google officials attending other White House events, "but not an event on a topic for which the company was under active investigation."

Justice Department spokesman Brian Fallon said Google's involvement in the White House program did not shield it from aggressive prosecution, noting that the company ended up forfeiting $500 million, one of the largest such forfeitures at the time.

FDA officials had notified the White House ahead of time about the investigation, said agency spokeswoman Erica Jefferson.

"The agency had no concerns about a conflict of interest from our point of view," she said. "It was conducted as an educational forum."

Nine months after the White House meeting, the Rhode Island U.S. attorneys office and the FDA announced that Google had agreed to settle. The company admitted that it improperly helped online pharmacies place ads for illegal and controlled drugs.

The forfeiture by Google, and its rare admission of wrongdoing, was announced not by Holder or his deputies - who often take part in announcements for high-profile corporate settlements - but at a Providence, R.I. news conference held by the U.S. attorney of Rhode Island, Peter Neronha. No Justice Department officials from Washington participated in the event.

Mississippi's Hood, a Democrat, said the relationship between Google and the White House may have led the administration to help soften the company's public relations blow by playing down the announcement of the fine. Schmidt, now Google's executive chairman, has been a campaign supporter and adviser to President Barack Obama.

"I don't think the Department of Justice was allowed to promote it the way they would some other $500 million fine," Hood said.

Fallon called that "absurd," saying the news conference was held in Providence because the Rhode Island office led the investigation. He noted that the Justice Department put out a news release about the settlement that featured a statement from the No. 2 official in the department, James Cole.

Since that time, law enforcement officials and public health advocates say, the problem of unlicensed Internet pharmacies has escalated as Americans increasingly go online to buy prescription drugs.

Google is not the only search engine contending with illicit Internet pharmacies. But as the dominant search company - used in an estimated two-thirds of searches in the United States - it has drawn the most attention.

"As the chief law enforcement officers in our state, we are saying, 'Google, we need you to do more,' " said David Louie, a Democrat who is Hawaii's attorney general. " 'You're the big dog. You're the number one search engine.' "

In late February, representatives from the offices of 21 attorneys general met in Washington with six Google executives to discuss their concerns about dangerous and pirated goods online. The company noted at the meeting that it is increasing spending on policy enforcement by 10 percent this year, to $114.5 million.

Google also said it was eliminating 1,200 predictions from its auto-complete function, including "how to get away with robbing a house" and "how to buy slaves."

Colorado Attorney General John Suthers, a Republican, said he was heartened to see that, after initial resistance, Google has become more responsive.

"They are now at the table," he said.

But Hood and some other state prosecutors want Google to "delist" sites that promote illegal activities and products, in the same way it has removed those featuring child pornography. The company has rejected that idea, saying that puts Google in the role of policing speech and could embolden other countries to attempt to remove websites that violate local laws.

"They don't want to become the content censor," Louie said. "Our view of that is that we're not talking about nuanced stuff. We're urging that kind of approach for things that are low-hanging fruit - counterfeit items, illegal pharmacies - that are very blatant and brazen."