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Why DOJ's Pending Criminal Case Against Google is Very Serious

The widely reported DOJ criminal investigation into Google for promoting illegal pharmacy sales may be Google's most serious clash with Federal law enforcement to date; (even compared to Google's many previous run-ins with law enforcement chronicled in my recent Forbes op-ed.)

Why is this case is so serious?

First, this is a bonafide criminal probe involving Google promoting illegal drug sales, which could have put hundreds of thousands of U.S. consumers at serious risk of injury or death from counterfeit, harmful, or inappropriate-use drugs.

 

  • This case involves more than fraudulent business behavior, it appears to involve criminal disregard for the health and safety of consumers for monetary gain.

 

Second, if reports are correct that this case also involved an official Google business decision in 2004 that Google, unlike other online advertisers, would continue to promote Canadian pharmacies that they and others knew sold drugs illegally to U.S. customers, then Google may have made a deliberate business decision to disregard the law.

 

  • Thus why this is being characterized as a criminal case, and not a civil case, is that it appears that the U.S. Attorney must have email or other evidence documenting Google's "willful intent" to disregard the law in this instance.

 

Third, the size of the reported fine, ~$500m, could be the third highest corporate criminal fine in history, only behind Pfizer and Eli Lilly 2009 fines.

 

  • Given that Google's illegal behavior appears very similar to Pfizer and Eli Lilly's, it may be hard for Google to finagle special political treatment in a settlement to get the criminal charges lowered to civil charges.

 

Fourth, this is no minor penny ante crime, but a potential ~$5b in illegal pharmacy sales, if the $500m reaped by Google in ill-gotten advertising revenues represents about 10% of the total illegal pharmacy sales involved.

 

  • To put this estimate in perspective, if the average prescription was $50, Google was involved in facilitating roughly 10 million illegal prescriptions.

Fifth, if Google were found guilty of a criminal charge in court, or even plead guilty to a criminal charge in a settlement, Google would be debarred from doing business with the Federal Government, threatening Google's nascent, but strategically very important, plans to break into the Federal IT market in a big way to provide cloud computing services.

 

  • Thus it is in Google's huge self-interest to do everything it can in settlement negotiations, to agree to a higher civil fine or other restrictions to avoid the criminal record which would customarily debar a company from doing contract work for the Federal Government.
    • (Remember DOJ recently told a Federal court that Google had misrepresented that one of its software suite of services was FISMA or fully security-certified when it was not.)

Sixth, the context of these criminal settlement negotiations between Google and the DOJ occur at a time that Google is defiantly thumbing their nose at DOJ concerning other important law enforcement matters.

 

  • Google's Chairman Eric Schmidt has just threatened that even if the Congress passed a law to reign in copyright-infringing websites by requiring that search engines and others not link to and support these criminal sites, Google would still fight the requirement.
    • The attitude of Google's leadership appears to directly be challenging the Government's sovereignty to pass and enforce laws.
    • Given the Supreme Court's 9-0 decision to shut down Grokster for copyright infringement, Google's claim that such a law proposed by the Senate Judicary Chairman would be an infringement of free speech rights -- seems an almost laughably roguish position.
  • Google also currently is snubbing its nose at the DOJ and the Federal Judge that opposed the Google Book Settlement as unlawful, by continuing to copy millions of books without permission.
    • (For the record, Google does not have my permission to copy my new book Search & Destroy Why You Can't Trust Google Inc.)

 

Seventh, this issue is serious because it appears Google has known about this investment-material criminal investigation for several months, but did not disclose it to investors in a timely manner as required by SEC regulation.

 

  • It is hard to see how Google can say that a pending criminal investigation is not material information for investors, especially if the ~$500m Google is accruing for a fine, would reduce Google 1Q11 profits by ~20%.
    • It is also especially important to a company that maintains that trust is central to the ongoing success of their business franchise.
  • If any Google executives have been selling stock, it raises the question of why Google delayed disclosing this material information until after new Google CEO Larry Page's first quarterly conference call appearance was over and why just after a Google executive testified before the Senate Judiciary Committee, ironically on Google's invasion of privacy.

In sum, from the information we publicly know there is sufficient evidence to conclude that this criminal investigation into Google's promotion of illegal pharmacy sales may be the most serious law enforcement crisis Google has faced to date, if not the most serious.

 

  • It will be telling to watch how Google spins this news when it comes out.
  • Like past practice, will Google...
    • Blame users and publishers...
    • Claim everybody does it...
    • Claim this law enforcement is what normally happens to any successful company that is "innovative" or "disruptive..." or
    • Spin (like in the FTC-Google privacy enforcement action) that what sanctions Google must live under would be a good baseline for everyone else to follow, so in a sense, Google can be looked at not as a law breaker, but really as a positive role model for other corporations to follow going forward....

What's really needed is for the company to unequivocally say that breaking the law and endangering consumers with injury or loss of life is wrong, and that it won't happen again because the company is fully committed to implementing the management accountability measures to ensure that nothing like this behavior ever happens again at Google.

  • Sadly, no one should hold their breath on that one...

     

       

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