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Archive for August, 2011


U.S. government announces Google will pay $500 million fine to settle illegal advertising charges

It looks like Google critic David Brandt was right about Google being in bed with rogue online pharmacies. Here’s the Department of Justice:

Online search engine Google Inc. has agreed to forfeit $500 million for allowing online Canadian pharmacies to place advertisements through its AdWords program targeting consumers in the United States, resulting in the unlawful importation of controlled and non-controlled prescription drugs into the United States, announced Deputy Attorney General James M. Cole; Peter F. Neronha, U.S. Attorney for the District of Rhode Island; and  Kathleen Martin-Weis, Acting Director of the U.S. Food and Drug Administration’s Office of Criminal Investigations (FDA/OCI).  The forfeiture, one of the largest ever in the United States, 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.

As part of the settlement, Google also agreed to an admission of wrongdoing.

It looks like justice has been served. This is a pretty steep fine. Obviously, DoJ investigators were able to find strong evidence that Google was flagrantly breaking the law, or Google wouldn’t have settled the charges. The cost of the settlement has already decreased Google’s quarterly profit by 22%, after the company set aside the money it anticipated having to pay the feds.

“This investigation is about the patently unsafe, unlawful, importation of prescription drugs by Canadian on-line pharmacies, with Google’s knowledge and assistance, into the United States, directly to U.S. consumers,” said U.S. Attorney Neronha. “It is about taking a significant step forward in limiting the ability of rogue on-line pharmacies from reaching U.S. consumers, by compelling Google to change its behavior.   It is about  holding Google responsible for its conduct by imposing a $500 million forfeiture, the kind of forfeiture that will not only get Google’s attention, but the attention of all those who contribute to America’s pill problem.”

LGB applauds the United States government for holding Google accountable in this case. Perhaps this investigation will cause the Monster of Mountain View to think twice before breaking the law in the future.

Google issued a short, meek statement on the settlement and then refused to comment further. The statement read:

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.

It actually took Google years to get around to banning rogue online pharmacy ads. Google’s competitors took such actions back in 2003, but Google did not follow suit. Instead, it behaved unethically and illegally. Now it will pay the price.


Google announces its biggest acquisition ever: It wants to buy Motorola Mobility

The Monster of Mountain View is trying to make a monster deal:

In a bid to strengthen its mobile business, Google announced on Monday that it would acquire Motorola Mobility Holdings, the cellphone business that was split from Motorola, for $40 a share in cash, or $12.5 billion.

The offer — by far Google’s largest ever for an acquisition — is 63 percent above the closing price of Motorola Mobility shares on Friday. Motorola manufactures phones that run on Google’s Android software.

Considering that the feds recently initiated an antitrust investigation of Google, this is a rather aggressive move on Google’s part. $12.5 billion is nearly three times what Microsoft, RIM, Apple, Sony, and others put down to buy the patent portfolio of the now-defunct Nortel Networks. Google had been bidding separately for the portfolio, but it decided to pull out as the price went over $4 billion, leaving its competitors victorious.

Google will be pushing hard for this deal to go through. They are clearly ready to sweet-talk regulators for as long as it takes to win approval. They stand to pay a huge financial penalty if they can’t:

Google agreed to pay Motorola Mobility $2.5 billion if the deal falls through, a person familiar with the matter said. Motorola Mobility would pay $375 million if it decided not to sell to Google, the person said. Jennifer Erickson, a spokeswoman for Motorola Mobility, declined to comment on the breakup fee, as did Aaron Zamost, a spokesman at Google.

Motorola’s rivals – chiefly HTC and Samsung – might want to start rethinking their alliance with Google right about now. They’ve just been spurned.

Google may try to claim they are not aspiring to copy Apple’s business model, but such claims are laughable now considering the deal they announced this morning. There’s no way Google would pay such a premium for a phone manufacturer just to gain control of some patents. No, this is about Google entering the hardware business. Apple just took the top spot from oil giant ExxonMobil as the world’s most valuable company. Most of their revenue comes from selling hardware.

Google figures it can make a lot more money than it does now if it sells hardware and then serves up ads on the devices it sells. They want to exercise more control over the user experience. With Motorola Mobility, Google will be able to make its own phones, tablets, and dumbed-down laptop computers (Chromebooks). It is seeking to gain the power to dispense with partners and instead concentrate on building a fan club like Apple does.

Regulators should say no to this deal. They won’t, but they should. It’s bad for competition in the wireless industry and it’s bad news for user privacy and security.