Bloomberg News

Google Sued by Investor Over ‘Illegal’ Imported Drug Ad Sales

August 30, 2011

Aug. 29 (Bloomberg) -- Google Inc. and its directors were sued by shareholder who claims they breached their fiduciary duty by facilitating illegal imports of prescription drugs, leading to a $500 million settlement with the U.S. government.

Chief Executive Officer Larry Page and the company’s board knew or should have known it was illegal for pharmacies outside the U.S. to ship prescription drugs into the country, according to a complaint filed yesterday in federal court in San Jose, California, by a Pennsylvania woman who owns Google shares. The so-called derivative lawsuit was filed on behalf of the company and its investors.

The company was on notice as early as 2003 that online Canadian pharmacies were advertising prescription drugs to Google users through its AdWords advertising program, according to the complaint, which cited a non-prosecution agreement between Google and the Justice Department.

Google’s annual reports from 2003 to 2009 were false and misleading because the company didn’t disclose revenue from the improper advertising, according to the complaint, which seeks unspecified damages.

The $500 million settlement announced Aug. 24 represents revenue that Google generated from the ads and that Canadian pharmacies reaped from online drug sales to American consumers, the Justice Department said.

Aaron Zamost, a Google spokesman, said the company hadn’t seen the complaint and he had no immediate comment.

Google had $29.3 billion in revenue last year, more than 96 percent of it from advertising, according to Bloomberg data. The Mountain View, California-based company said in May that it had set aside $500 million to resolve an investigation of its ad business.

The case is McKenna v. Page, 11-04248, U.S. District Court, District of Northern California (San Jose).

--With reporting by Brian Womack in San Francisco. Editors: Peter Blumberg, Michael Hytha

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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