Reflections on the DOJ-Google Half-Billion Deal over Illegal Pharma Ads (July-August 2011 Quick Links, Part 2)

September 7, 2011 · by Eric Goldman · in Content Regulation, E-Commerce, Marketing

By Eric Goldman

I haven’t previously written on the DOJ’s bust of Google over illegal pharmaceutical ads, partially because I couldn’t reconcile my views about this enforcement action. From my vantage point, this action equally fits into two dichotomous stories, and these stories may not be mutually exclusive.

Story #1: Google’s massive revenues and profits are significantly inflated by illegitimate ads. Here, we learn that Google was raking in millions of dollars from ads for illegal pharmaceuticals. We also know Google has struggled with gambling ads (1, 2), ads for bogus ringtones, ads that trademark owners consider infringing, and other problematic ads.

The sources of Google’s revenues may be like the log that no one wants to turn over to see what’s under it. I bet that if we could get a detailed line-item breakdown of where Google’s revenues come from, more than a few folks would be queasy about some key revenue categories.

Over the years, Google has taken some baby steps to screen out bogus advertisers from its network, but I wonder if Google’s “Must. Be. Scalable!” mantra–and the concomitant profits that come from willful blindness–has inhibited Google from undertaking some needed, but necessarily manual, steps to police its ad network more aggressively.

Story #2: The incumbent DC regulators view Google’s emerging power as unwanted competition to their regulatory power, and like typical incumbents, the DC regulators are closing ranks on the start-up–meaning they have become hellbent on busting Google, legitimately or not. To me, the Google Buzz settlement is a clear example of how DC regulators are unnecessarily flexing their muscles against Google.

Some details made me wonder if the DOJ misused its power in this enforcement action:

* the Rhode Island’s US Attorney’s post-announcement attack on Larry Page, declaring that he knew of the illegal ad sales. Given the DOJ’s subsequent rhetoric, it makes me wonder if the DOJ threatened Page with criminal prosecution. If nothing else, the personal prosecution threat would have a powerful in terroram effect to goad Google to take a deal, warranted or not.

To be clear, the non-prosecution agreement doesn’t explicitly protect Larry Page, but I think a personal prosecution is super-unlikely at this point. The agreement might insulate his acts on the company’s behalf, and I can’t imagine the DOJ will want to spend further prosecution resources after getting such a big score already. So the net effect is that this deal should end the matter.

* the deal was structured as a civil forfeiture. Note the DOJ (or any other federal agency) would have encountered significant problems bringing a civil action against Google over the third party ads. 47 USC 230 would have preempted the action, and with a half-billion dollars at issue, Google surely would have litigated any statutory ambiguities rather than roll over. Therefore, as Peter Henning explains, the government avoided pursuing a doctrinally questionable criminal prosecution and simultaneously bypassed a likely 47 USC 230 immunity of any civil action. Pretty tricky navigation by the DOJ.

* finally, Google disgorged both its revenues AND ITS ADVERTISERS’ REVENUES from the illegal ads. I can’t think of any comparably sweeping remedy in any other advertising lawsuit (am I forgetting something?). I simply can’t believe the DOJ could have gotten a judge to order a similarly expansive disgorgement. Thus, it appears the DOJ asked for way more cash than the law actually allows–and yet a pliable target forked it over.

If Story #2 is true, the deal could be an unholy pact: Google bought the freedom of its CEO for a check that is a pinprick compared to its cash on hand; and the DOJ got a huge taste of Silicon Valley’s wealth and publicly blare that justice was served–even if the DOJ vastly exceeded current law to get there.

One more reason that story #2 could be plausible. The DOJ portrays this as a case about illegal pharmaceuticals, but it imprecisely lumps together a variety of factually different situations into that category, including:

* pharmaceuticals that are never legal in the United States

* fraudulent pharmaceuticals, i.e., sugar pills sold as brand X

* counterfeit pharmaceuticals, i.e., bioequivalent pharmaceuticals sold as brand X but made by someone else

* prescription pharmaceuticals that aren’t fraudulent or counterfeit but are being sold without a prescription

* prescription pharmaceuticals that aren’t fraudulent or counterfeit that being sold with a prescription, just not one recognized by US law

Note that the consumer harm in the last 3 circumstances is unclear. It’s possible that some consumers win in each of those cases by getting the desired pharmaceutical at a cheaper cost than US drugs. Such consumer wins don’t make the pharmaceutical sales legal; but it raises the question of whether the US government was pursuing the best interests of its citizens

One final point: the DOJ press release describes the illegal pharmaceutical advertisers as “rogue” websites. That’s an interesting characterization. It seems to tie into the DHS ICE’s domain name seizures and the proposed PROTECT IP Act. At minimum, the DOJ enforcement action reinforces how desperately DC regulators want Internet companies to do more of their policing work. Also, perhaps the deal’s template shows how the DOJ thinks it can achieve PROTECT IP irrespective of whether Congress enacts the law.

Reflections on the DOJ-Google Half-Billion Deal over Illegal Pharma Ads (July-August 2011 Quick Links, Part 2)

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