Google's Potential Liability for AdWords Increases

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It wasn't really a big surprise, but Google's (NAS: GOOG) forfeiture of $500 million of profits from Canadian pharmacy ads on its AdWords program -- its main source of revenue -- is still big news that can affect its operations. This settlement could be a precursor for things to come.

Blame the users, not us
The world's biggest online search engine, along with many other companies operating online, has always maintained that it should not be accountable for what its users do -- whether those users are selling fake goods or uploading copyrighted material.

eBay (NAS: EBAY) has faced multiple lawsuits and fines for allowing its users to sell knockoff products. The online auctioneer says it promptly takes down counterfeits. Google's had its troubles with Viacom (NYS: VIA) and other content providers over bootleg videos uploaded to YouTube. In a bid to resolve these tensions, Google has set up an automated system to detect copyright-infringing videos. Even in its search site, Google filters out results that violate copyrights.

So far, Google has generally prevailed against challenges to AdWords by asserting that users are liable for choosing keywords and writing ads. The search giant has been settling trademark claims related to the program. In the EU, though, one court found Google not liable for AdWords ads hawking counterfeit goods.

Selective filtering and restrictions
Intriguingly, while all these companies claim that user misbehavior is not their responsibility, they somehow manage to have strict rules and prevent those same users from say, selling guns on eBay, or uploading porn on YouTube. In its AdWords program, Google also restricts ads for certain products and services, including abortion and alcohol. In addition, Google actually blocked pharmacy ads from other countries, even as it allowed Canadian ones.

In this particular case, the DOJ prevailed by proving that Google actually assisted the Canadian pharmacies, leaving the company now more accountable for its main source of revenue.

To this new potential misery, add Google's myriad of other possible legal problems:

  • Antitrust probes launched against the company by the FTC and the EU
  • Privacy investigations, lawsuits, and fines worldwide from its Street View photographs
  • Charges regarding privacy violations from the launch of its Buzz notification service, which Google has already partly settled.

Furthermore, a judge in Italy last year held three Google executives criminally responsible for an online video of a group of kids bullying an autistic teenager.

The $500 million settlement for Canadian pharmacy ads, which Google has already charged in the first quarter, won't affect the company much. Its revenue and income in the second quarter alone were $9.03 billion and $2.51 billion, respectively. But Google's potential future liability has increased as regulators and governments around the world strive to make the company and its Internet ilk more accountable for its users' deeds.

Google may have to start paying more attention to what its users are doing with its services and on its sites. The "do no evil" company may want to get ahead of the issue, setting up even more automated systems that ensure all content is legal, and diverting more resources to make sure users don't use its sites to break the law. Otherwise, if the trend toward demanding greater accountability from companies continues, the potential liabilities could one day be too much for Google to shrug off.

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At the time this article was published Fool contributorMelly Alazrakidoes not own any shares in the companies mentioned. The Motley Fool owns shares of Google.Motley Fool newsletter serviceshave recommended buying shares of Google and eBay. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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