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Google shells out a huge settlement, how will it impact their bottom line?
August has been a big spending month for Google. First, the search engine giant purchased Motorola Mobility for a staggering $12.5 billion and now they have just agreed to pay a $500 million settlement in order to avoid being prosecuted by the Justice Department for accepting advertisements from online Canadian pharmacies, which is illegal in the United States. With all of this spending, many people in the financial industry are wondering how it will effect their bottom line in the long run.
Admitting that they were wrong was a brave move. In a statement from the company, they said that they banned the illegal advertising of low cost prescription drugs from Canadian pharmacies some time ago. They went on to admit that in the past, they did knowingly allow the advertisements to run on Google search result pages and that in hindsight, they never should have done it.
According to the U.S government, these types of ads are far from harmless and because they appeared on Google, they led to a huge increase in the sale of these black market medications. Because these drugs aren't tested by the Food and Drug Administration, they could be incorrectly marked or even tainted, which would put the health of the American consumer in jeopardy.
The settlement was certainly one of the largest fines ever paid by an American company. According to the Justice Department, the $500 million figure was determined by adding the amount that they claim Google made from the illegal ads and the money that the Canadian pharmacies earned through selling medications illegally to Americans.
Google has been in a lot of legal trouble lately, and this settlement put an end to one of the biggest legal issues. The company is still facing an antitrust investigation by the Federal Trade commission, and another inquiry from regulators in Europe. Still, this settlement, while expensive, will prevent the company from facing a drawn out investigation and trial. Not only would that raise uncomfortable questions about which executives were aware of the illegal advertisements but also how long they were aware of it.
That sort of media attention and scrutiny could have been very damaging to Google's reputation. Certainly, their competitors wouldn't waste any time making sure that they capitalized on it. Google has always been a giant of a competitor, and companies like Yahoo and Microsoft would have to discredit them before they could hope to take them down.
If Google had been put on trial instead of settling the lawsuit, and it was revealed that they, as a company, knowingly engaged in a very lucrative practice that was not only illegal but could have endangered the lives of American consumer,people would lose faith in their motto "Don't be Evil".
Although this settlement was huge, I find it curious that both the U.S and Europe are eager to prosecute Google. Even with the financial scandals involving other large companies, like Enron for example, the Justice Department often ends up just giving the company the equivalent of a slap on the wrist. I guess that stealing your employees' pension isn't nearly as damming as running small advertisements from online Canadian pharmacies.
It's certainly telling that both Microsoft and Yahoo have run large numbers of these types of advertisements, although they are not under investigation and as of right now, there is no pending legal action against them.
The reason for the difference in treatment is unknown. Maybe they didn't catch Yahoo in the act and they stopped accepting those types of illegal ads several years ago.
I think that maybe the difference is that Google's balance sheet in March of this year showed that they were sitting on $36.7 billion in cash and securities. I don't know about you, but that is a considerably more cash that I typically keep on hand. In fact, it's more than the GDP of many countries.
It seems to me that the economy is struggling right now and the government is having trouble paying their bills. Their credit rating took a hit, so maybe they are just trying to break into another piggy bank.
What Google did was a violation of the United States law, and it was wrong. Still, $500 million seems a little excessive.
What do you think about this settlement? Let me know in the comments.
By Melissa Kennedy- Melissa is a 9 year blog veteran and a freelance writer for FinancialJobBank. Along with helping others find the job of their dreams, she enjoys computer geekery, raising a teenager, supporting her local library, writing about herself in the third person and working on her next novel.