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Two Investor Lawsuits Target Google, Executives over AdWords Settlement

Sep 7, 2011 | Parker Waichman LLP

So far, Google's recent $500 million settlement with the federal government over allegedly illegal AdWords sales has spawned two shareholder lawsuits that name the company, as well as some of its executives and officers, as defendants.  The lawsuits, both of which were filed in federal court in San Jose, California, claim Google and the other defendants breached their fiduciary duties by facilitating illegal imports of prescription drugs.

"The breadth and scope of the wrongdoing was astonishing," claims one of the lawsuits. "From 2003 to 2009, Google knowingly assisted Canadian pharmacies in advertising the illegal sale of prescription drugs."

Defendants named in the lawsuits include CEO Larry Page, Chairman Eric Schmidt, and co-founder Sergey Brin.

The lawsuits were filed just days after Google agreed to pay $500 million to settle charges it allowed online Canadian pharmacies to place advertisements through its AdWords program targeting consumers in the U.S. Because of Google's sale of these internet ads, many U.S. consumers then went on to import prescription drugs from Canada, which according to the U.S. Justice Department "is almost always unlawful."

Like the Justice Department, the investors filing the Google shareholder lawsuits allege the company knew as early as 2003 that shipping drugs from Canada into the U.S. was illegal in most cases.  While Google was warned about the sales in 2003 and 2008 by U.S. pharmaceutical drug regulators, it allowed ads from Canadian online pharmacies to target U.S. consumers until 2009, when it became aware of the government investigation. Google directors and executives could have acted much sooner and perhaps prevented the $500 billion forfeiture, the investors claim.

Both lawsuits seek to recover the $500 million that was forfeited in the settlement.  They are also asking for additional damages to be decided by a jury to "punish defendants and to make an example of defendants."

According to a statement from the Justice Department, the $500 million settlement represented  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. 

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