Google Forfeits $500M in Pharmaceutical Ad Investigation, Could Facebook Be Next?

Updated 11:43 a.m., Aug. 26

Google’s healthy online advertising business took an anticipated hit today when the Justice Department announced that is fining the company $500 million for helping Canadian pharmaceutical companies to place illegal online ads in the U.S.

In a lengthy release, the Justice Department calls out Google’s lax management of its AdWords program, which allows companies to place advertisements across the web and next to Google search results. (AdWords is estimated to pull in $30 billion this year and is Google’s primary source of revenue). As the DOJ puts it:

As early as 2003, Google was on notice that online Canadian pharmacies were advertising prescription drugs to Google users in the United States through Google’s AdWords advertising program. Although Google took steps to block pharmacies in countries other than Canada from advertising in the U.S. through AdWords, they continued to allow Canadian pharmacy advertisers to target consumers in the United States.

The $500 million forfeiture, one of the largest in American history, “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,” according to the DOJ.

In exchange, Google won’t face criminal charges, but will be subject to “compliance and reporting measures.”

Google had been preparing to hand over the money for some time, too, including it in a regulatory filing earlier this year.

Google responded to the news with characteristic annoyance, telling the Wall Street Journal: “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. Given the extensive coverage this settlement has already received, we won’t be commenting further.”

Although it is illegal to import Canadian drugs into the U.S. except through a pharmaceutical company, U.S. consumer demand for Canadian pharmaceuticals has skyrocketed in recent years, namely due to their relative cheapness and availability. As the Canadian Pharmaceutical Journal explained last year:

In Canada, brand name drugs are on average 57% less than US brand name products and range from 40% to 80% less. Generic drugs, however, are 115% higher in Canada. Price is truly the driving force for the US public demand for Canadian drugs. However, the rising value of the Canadian dollar compared to the US dollar has decreased the demand for Canadian pharmaceuticals.

So even though the Justice Department hopes to send a message to other online ad and pharmaceutical companies, the continued demand on our side of the border will likely keep the illegal online drug ad market thriving. The real question remains: which online ad publisher might the DOJ look into next?

When it comes to the U.S. online ad business, you can probably already guess which company tops the list: Facebook, which took a full 31.2 percent of display ads in the U.S. in the first quarter of 2011, compared to Google’s 2.5 percent, according to Comscore.

Facebook’s own online ad guidelines specifically state:

Pharmaceuticals and Supplements Ads must not promote the sale of prescription pharmaceuticals. Ads for online pharmacies are prohibited except that ads for certified pharmacies may be permitted with prior approval from Facebook. Ads that promote dietary and herbal supplements are generally permitted, provided they do not promote products containing anabolic steroids, chitosan, comfrey, dehydroepiandrosterne, ephedra, human growth hormones, melatonin, and any additional products deemed unsafe or questionable by Facebook in its sole discretion.

Still, in at least one case, Swiss drugmaker Novartis was hounded by the FDA for advertising on Facebook. While that’s obviously not in any way tantamount to what Google was found to be doing, it is a warning flag that problematic online drug advertisements aren’t going away any time soon.

We’ve reached out to the DOJ and Facebook to ask them if they’ve experienced any issues with improper Canadian pharmaceutical advertisements in the U.S., and will update when we get a response.

Late Update: Facebook’s PR agency Outcast responds to us via email. Spokeswoman Amy Tokarski neither confirms or denies whether Facebook has experienced any problems with pharmaceutical advertising, writing: “Ads on Facebook go through a process of both automated and manual review and we immediately take down ads that are in violation of our policies when they come to our attention.”

She continues: “We have reporting tools in place for our ads just like we do for other content on the site. People can always “X” out ads if they wish to report them. Facebook reserves the right to reject, approve or remove any ad for any reason, in our sole discretion, including ads that negatively affect its relationship with users or that promote content, services, or activities, contrary to its competitive position, interests, or advertising philosophy. Facebook abides by all local laws when it comes to advertising – including pharmaceutical advertising.”

She also refers us to the infamously long lists of policies and guidelines Facebook advertisers are asked to follow, available here, here, here and here.