Google investors sue Page, Schmidt over $500M settlement with DOJ

"Scope of wrongdoing astonishing," alleges lawsuit filed over payment for aiding imports of prescription drugs

Google's board of directors and several of its executives, including CEO Larry Page and chairman Eric Schmidt, were sued this week in a pair of lawsuits that claimed they breached their fiduciary duties by facilitating illegal imports of prescription drugs.

Last week, the U.S. Department of Justice (DOJ) announced that Google will pay $500 million to settle allegations that it knowingly allowed Canadian online pharmacies to use the company's AdWords system to advertise prescription drugs to U.S. consumers.

In a statement at the time, Google acknowledged an error, but stopped short of admitting guilt. "It's obvious with hindsight that we shouldn't have allowed these ads on Google in the first place," the company said.

The lawsuits were filed in federal court in San Jose on Aug. 29 by two Google shareholders on behalf of the company and other investors.

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

Both lawsuits charged Google's directors, including Page, Schmidt and co-founder Sergey Brin with violating their duties as corporate officers and for wasting company money by allowing the pharmacies to purchase online advertisements via Google's AdWords program.

The $500 million settlement the DOJ announced Aug. 24 represents Google's revenue from the ads and the money the Canadian pharmacies made by selling online drugs to U.S. consumers.

The complaints filed Monday made extensive use of the DOJ's press release, noting that, according to federal investigators, Google knew as early as 2003 that shipping drugs from Canada into the U.S. was almost always illegal.

Only in 2009, when the DOJ began investigating Google and after warnings by a series of experts, did the company put practices in place to bar advertising of Canadian online pharmacies, the lawsuits claimed. The directors and executives could have acted much sooner and perhaps prevented the half-billion-dollar forfeiture.

"Google's quick response after learning about the [DOJ] investigation shows that the Individual Defendants could have, at any time of the six-year-long scheme, stopped the Company from assisting the online pharmacies," one of the two lawsuits said.

The lawsuits demanded that the directors and executives make good the $500 million, and be required to pay damages to be decided by a jury to "punish defendants and to make an example of defendants."

Besides Page, Brin and Schmidt, the lawsuits also named current board members John Doerr, of venture capital firm Kleiner Perkins Caufield & Byers; John Hennessy, the president of Stanford University; Paul Otellini, the CEO of Intel; Shirley Tilghman, president of Princeton University; and others.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed. His e-mail address is gkeizer@computerworld.com.

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Tags IT managementinternetGooglesearch enginese-commercee-businessU.S. Department of JusticeInternet SearchIT Leadership

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Gregg Keizer

Gregg Keizer

Computerworld (US)
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