Overstock.com 2002 Annual Report Download - page 9

online retailers with discount tabs such as Amazon.com, Inc., eBay, Inc. and Buy.com, Inc.; and
traditional retailers and liquidators such as Ross Stores, Inc., Walmart Stores, Inc. and TJX Companies, Inc.
As the market for online liquidation grows, we believe that companies involved in online retail, as well as traditional retailers and liquidation brokers,
will increase their efforts to develop services that compete with our online services. We also face potential competition from Internet companies not yet
focused on the liquidation market, and from retail companies not yet operating online. We are unable to anticipate which other companies are likely to offer
services in the future that will compete with the services we provide.
In addition, many of our current and potential competitors have greater brand recognition, longer operating histories, larger customer bases and
significantly greater financial, marketing and other resources than us, and may enter into strategic or commercial relationships with larger, more established
and well-financed companies. Some of our competitors could enter into exclusive distribution arrangements with our vendors and deny us access to their
products, devote greater resources to marketing and promotional campaigns and devote substantially more resources to their Website and systems
development than our company. New technologies and the continued enhancement of existing technologies also may increase competitive pressures on our
company. We cannot assure you that we will be able to compete successfully against current and future competitors or address increased competitive
pressures. See "Risk Factors."
Intellectual Property
We regard our domain names and similar intellectual property as critical to our success. We rely on a combination of laws and contractual restrictions
with our employees, customers, suppliers, affiliates and others to establish and protect our proprietary rights. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use our intellectual property without authorization. In addition, we cannot assure you that others will not
independently develop substantially similar intellectual property. Although we are pursuing the registration of our key trademarks in the United States, some
of our trade names are not eligible to receive trademark protection. In addition, effective trademark protection may not be available or may not be sought by
us in every country in which our products and services are made available online, including the United States.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties by our company. For example, in February 2002, Microsoft Corporation filed a complaint
against us in the United States District Court for the Northern District of California alleging that we have distributed counterfeit and otherwise unauthorized
Microsoft software in violation of federal copyright and trademark law and related state laws. The complaint seeks damages in an unspecified amount and
injunctive relief. Although we believe we have defenses to the allegations and intend to pursue them vigorously, we do not have sufficient information to
assess the validity of the claims or the amount of potential damages. This litigation matter is ongoing and unresolved and could result in settlement
arrangements or an unfavorable outcome, including potential statutory damages.
In addition, in January 2003 we received a letter from NCR Corporation claiming that certain of our business practices and information technology
systems infringe patents owned by NCR. The letter further stated that NCR would vigorously protect its intellectual property rights if we did not agree to enter
into licensing arrangements with respect to the asserted patents. On January 31, 2003, we filed a complaint in the United States District Court of Utah, Central
Division, seeking declaratory judgment that we do not infringe any valid claim of the patents asserted by NCR.
Third parties have in the past, and may in the future, recruit our employees who have had access to our proprietary technologies, processes and
operations. These recruiting efforts expose us to the risk that such employees will misappropriate our intellectual property.
Additional litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Any litigation, regardless of outcome or merit, could result in substantial costs and diversion of management and
technical resources, any of which could materially harm our business. See "Risk Factors."
Government Regulation
All of our services are subject to federal and state consumer protection laws including laws protecting the privacy of consumer non-public information
and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, we must provide
notice to consumers of our policies on sharing non-public information with third parties, must provide advance notice of any changes to our policies and, with
limited exceptions, must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Furthermore, the
growth and demand for online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on online
companies. These consumer protection laws could result in substantial compliance costs and could interfere with the conduct of our business.
Moreover, in many states, there is currently great uncertainty whether or how existing laws governing issues such as property ownership, sales and other
taxes, libel and personal privacy apply to the Internet and commercial online services. These issues may take years to resolve. For example, tax authorities in a
number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online
commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet and
commercial online services could result in significant additional taxes on our business. These taxes could have an adverse effect on our cash flows and results
of operations. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these
requirements.
Employees
As of December 31, 2002, we had 194 full-time employees, including 49 in customer service, 34 in order fulfillment, 13 in information technology and
Web store production, 9 in sales and marketing, 42 in merchandising, 10 in finance, 18 in B2B sales, 6 in business development and 13 in our executive and
administrative department. We have never had a work stoppage, and none of our employees are represented by a labor union. We consider our employee
relationships to be positive.
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