• by Wendy Davis  @wendyndavis, October 1, 2013

In a win for Google's leadership, a federal judge has dismissed a stockholder lawsuit centering on the search company's decision to allow Canadian pharmacies to purchase pay-per-click ads.

The lawsuit was filed in 2011, shortly after the Department of Justice fined Google $500 million for allowing the drug ads. The company allegedly allowed Canadian pharmacies to buy AdWords ads from 2003 through 2009.

A group of stockholders sued eight of the company's board members, alleging that they violated their duty of loyalty to stockholders by running the ads. The defendants included Google CEO Larry Page, former CEO Eric Schmidt, co-founder Sergey Brin, and five other board of directors members.

“Google’s directors and officers caused Google to facilitate the illegal importation of prescription drugs by Canadian pharmacies for at least six years,” the shareholders alleged. “Although facilitating improper advertisements temporarily helped Google secure millions in profits, the company ... has now been exposed to significant damage.”

But U.S. District Court Judge Phyllis Hamilton in the Northern District of California dismissed the lawsuit late last week, ruling that the stockholders had only raised enough evidence to show that one of the defendants -- former chief Eric Schmidt -- might have known that the drug ads were problematic. Some of that evidence came from Schmidt's testimony at a Senate Judiciary Committee hearing, at which he said that he learned in 2004 that the Canadian ads might be a liability.

The dismissal was without prejudice, meaning that the shareholders can file again. But Hamilton said that they can only proceed if they have enough evidence to indicate that at least four board of directors members knew before 2009 that the drug ads were problematic.