Google meets the FDA

Everything else
1

And doesn’t have a fun time of it. To those of us in the pharma world, we’re relatively used to seeing massive settlements with DOJ and FDA over various allegations.

I don’t think those in the software business are.

Until now.

Google Inc. (GOOG) agreed to pay $500 million to settle U.S. allegations that advertising for online Canadian pharmacies on its website allowed illegal imports of prescription drugs.
Google was aware as early as 2003 that the shipment of prescriptions to the U.S. from outside the country is illegal, the Department of Justice said in a statement. The payment represents revenue that Google generated from the ads and that Canadian pharmacies reaped from online drug sales to American consumers, the DOJ said.

“This settlement ensures that Google will reform its improper advertising practices with regard to these pharmacies while paying one of the largest financial forfeiture penalties in history,” Deputy Attorney General James Cole said in the statement.

Google, owner of the world’s most popular search engine, is grappling with increasing scrutiny from governments around the world, including an investigation of its business practices by the U.S. Federal Trade Commission. As part of the settlement today, there will be “a number of compliance and reporting measures,” the DOJ said, without providing further details.

I’m more than a bit speechless here. In the trade press, there was a telling statement by FDA’s head of the Office of Criminal Investigations: FDA will “hold all contributing parties accountable for conduct that results in vast profits at the expense of the public health.” So it’s not just direct actions, but contributing parties…that’s one hell of a slippery slope.

I’m also interested to find out why Google settled; pharma companies settle because conviction of a health care related offense (fraud and abuse, antikickback, or off-label) results in the company not being able to participate in any federal or state funded health care programs (i.e., Medicare). That’s a loss of 50% or more of revenue, so it’s generally considered the “death penalty.” So companies settle (i.e., Pfizer for $2.4 billion in 2009). Companies just won’t take DOJ/FDA to court, because the ramifications of an adverse verdict means you essentially close your business down.

Google doesn’t rely on this for revenue, so I really wonder why they settled…

2

Because it’s the easiest way out. Note that they’re only returning the profits made from those ads. They aren’t paying a fine, and they don’t have to face criminal charges. Seems like a no-brainer to me.

3

It says it also represents the profits made by the pharmacies, not just Google. It’s 500 million dollars, that’s a huge number.

4

You are correct - the pharmacy profits are included. Still, that’s only 20% of Google’s profit (not revenue) from a single quarter, and they already set aside the money, so it’s still a better deal than facing criminal charges.

5

It does if you think you’ll lose, or the litigation isn’t worth the effort.

6

Why settle? I mean, the downstream corporate consequences for a pharma company for a health care felony conviction are dire. The consequences for a health care felony conviction for a software company…it’s like a $200k fine and debarment from participation in federally funded healthcare compensation. Neither seems to be much of a deterrent if you’re not dependent on the latter…

Edited to add and the Responsible Corporate Officer doctrine (aka Park Doctrine) only applies to Execs in heavily regulated industries…and would not be extended to a basically non-regulated industry like software. So it’s not as if there would be any personal liability for the corporate execs…

7

I imagine they’re settling because, well, it’s illegal, and their policy is that isn’t allowed. It’s not like they’ll win on appeal.

8

Importing prescription drugs is illegal, accepting advertisements is not. The problem here is that Google didn’t just accept the ads, their marketing teams worked with the advertisers to make their campaigns more effective. In other words, not only were they aware of these ads, but they actively collaborated with them.

9

Because corporations facing criminal charges is really, really bad for business? Google has a really high share price due to its high profits, and any doubt on its ability to continue to generate those high profits could result in a stock price. I mean, would you invest in a company facing criminal charges? Sure, if it has a really low stock price and is likely to survive the charges. But an already high stock price? Not so much.

10

This is the devil they know, and they have enough money to make it go away forever. I sincerely doubt they’d get away with just a 200K fine, so why gamble?

11

The Federal Government has a lot of levers it can pull to get people to settle. While the normal leverage they have against Pharmas isn’t present here, I’m sure they trump up other charges like RICO violations (as an example). If the feds want you as a trophy it’s best to roll over and play dead.

12

Well it’s interesting, because FDA is really pushing the boundaries of the power vested in them under the Federal Food, Drug, and Cosmetic Act. From what I’ve read, the proximate cause here is far removed from what’s normally required.

And it seems to create a really nasty slippery slope. Let’s say a magazine allows a company to place an off-label ad in it; muddling with the facts a little, are they now liable for the prescriptions sold during that ad’s time frame?

13

The answer is no, but they might be if their marketing department knowingly worked with the company selling off-label drugs to maximize their advertising’s effectiveness.