Google's Ad Freedom Wrongly Curtailed

Last month Google was fined $500 million for allowing foreign pharmacies that sell to Americans to advertise on Google adWords. Google's agreement with the Department of Justice (DOJ) focused on controlled substances, like opiate painkillers, but as a result Google must now block all foreign prescription-drug advertisements. This ban includes foreign sites selling safe drugs to patients with valid prescriptions.

Failing to distinguish between licensed online pharmacies (Canadian or otherwise), which require a valid prescription and sell safe medications, and rogue online pharmacies, which sell lethal fake medicines or flout prescription requirements, means poor patients have less information to make good choices about the drugs they require. This settlement demonstrates the desire of government and industry to equate the two types of sellers and their products regardless of health consequences.

The DOJ's position is logical because personal importation is technically illegal. The reason for the law is to prevent financial losses to companies, not to safeguard health. Drug pricing is a complex matter; initial research and development costs are high and production costs are usually very low-the first pill costs a billion dollars to make, and the rest a few cents. While it would be efficient and equitable for producers to charge patients based on income-for poor patients to pay a fraction of rich patients-it is impossible for drug sellers to determine each patient's wealth and differentiate accordingly. As a result, all purchasers in the public and private sector in rich countries pay more for their drugs than their counterparts in poor nations, and the U.S. government bans all importation of overseas drug purchases to prevent wily traders from buying drugs in poor countries and reselling them at a profit in the U.S.

But what of poor patients in the U.S.? Numerous private and government support systems exist to help ease the cost for America's poor, but there are still millions of patients who are uninsured, and many who can't find cheap medicines in the U.S. look abroad.

In the U.S., companies are free to charge whatever the market will accept because there are no price controls. In Europe and Canada prices are capped, making many drugs substantially cheaper. These controls pervert the pricing system and cause understandable frustration to pharmaceutical companies that wish to create price tiers according to wealth. As a result American patients pay even more than their fair share and they subsidize drug research and development for the rest of the world.

To avoid high prices at home, U.S. patients have trekked to Canada for decades to buy their medicines. The proliferation of internet pharmacies has multiplied the effect-millions of Americans now illegally buy online. As patients take advantage of capped prices abroad, U.S. pharmacies may be losing some market share, but most evidence shows that the patients who can't afford their medication go without, rather than buying from other countries, so the impact on their bottom line is limited.

A debate about how to provide cheaper drugs for these Americans whilst protecting U.S. businesses is entirely legitimate. But it is a debate that industry doesn't think it can win. Instead of engaging in serious discussion, pharma companies and myriad industry-funded groups have scared Americans into believing that drugs from overseas pharmacies are inherently dangerous.

Their tactic is simple: focus on the thousands of rogue web sites selling dangerous medicines and dramatize the dangers; do not differentiate between the credentialed Canadian pharmacies and rogue sellers; claim that only American pharmacies sell safe medicines; and don't tell anyone that roughly 40% of medicines sold in U.S. are imported.

Google's current policy removes the potentially lethal sellers, but by disallowing credentialed foreign sites from advertising it will harm public health.

What is surprising is that independent groups, like Consumer Reports and AARP, have bought into this industry rhetoric or have failed to properly explain to their members that foreign doesn't necessarily mean dangerous.

What is most distressing about the Google agreement is that Google's earlier policy was actually optimal from a health standpoint. All domestic and foreign sites advertising on Google were supposed to be vetted by pharmacychecker.com, an independent credentialing organization. My research team's sampling of drugs (published in the peer-reviewed literature) found that none of the sites approved by pharmacychecker.com sold poor quality medicines even though they advertised lower prices than U.S. firms, and were all based overseas. But poor enforcement by Google led to advertising from web entities that were not credentialed by phamacychecker.com, some of which probably sold substandard and counterfeit medicines. Because of this poor oversight, officials concerned with promoting public health were right to challenge Google's weak enforcement of its policy.

Google's current policy removes the potentially lethal sellers, but by disallowing credentialed foreign sites from advertising it will harm public health. The tens of millions of uninsured Americans who cannot afford their drugs will go online to circumvent this obstruction. If they are unaware of pharmacychecker.com's credentialing, they will play Russian roulette and may end up buying a lethal product.

Ironically, the U.S. Food and Drug Administration does not attempt to prevent the illegal personal importation of prescription drugs. Enforcement would make criminals of millions of Americans who are unable to afford their medication. This de facto non-enforcement policy makes sense, but fining Google and limiting people's access to information about the best sources of those medicines does not.

Importing drugs wholesale, and allowing insurance reimbursement would critically damage research investments into new medicines and should not occur, but allowing the uninsured to buy foreign-sourced drugs with their meager income should be allowed. Companies will face minor losses which will not significantly affect R&D budgets.

Today's economically motivated law is neither logical nor enforceable. It will force millions of Americans to buy medication illegally without the necessary information about which online pharmacies sell safe drugs. Google should push the federal government to allow it to revert to its old policy and promise to enforce it properly this time.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI

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