Overstock.com 2006 Annual Report Download - page 103

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litigation, the Company may be subject to significant damages or equitable remedies relating to the operation of our business and the
sale of products on our websites. Any such litigation may materially harm our business, prospects, results of operations, financial
condition or cash flows. However, the Company does not currently believe that any of its outstanding litigation will have a material
adverse effect on its financial statements.
In December 2003, we received a letter from Furnace Brook claiming that certain of our business practices and our website
infringe a single patent owned by Furnace Brook. After diligent efforts to show that we do not infringe the patent and Furnace Brook's
continual demands that we enter into licensing arrangements with respect to the asserted patent, on August 12, 2005, 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 Furnace Brook patent. Furnace Brook filed a motion to dismiss our complaint for lack of personal jurisdiction over
Furnace Brook in Utah. On October 31, 2005, the United States District Court of Utah, Central Division, issued a decision to dismiss
our complaint for lack of personal jurisdiction over Furnace Brook. On December 14, 2005, we filed an appeal of the Utah decision
with the United States Court of Appeals for the Federal Circuit. On August 18, 2006, the United States Court of Appeals for the
Federal Circuit denied the Company's appeal. On August 18, 2005, shortly after we filed the complaint in Utah, Furnace Brook filed a
complaint in the United States District Court for the Southern District of New York, alleging that certain of our business practices and
our website infringe a single patent owned by Furnace Brook. On September 9, 2005, we filed an answer denying the material
allegations in Furnace Brook's claims. On September 27, 2006, the United States District Court for the Southern District of New York
issued a memorandum and order, Markman Hearing, which substantially adopted the Company's interpretation of the Furnace Brook
patent. We filed motions for summary judgment relating to the litigation and on October 6, 2006, the United States District Court for
the Southern District of New York heard oral argument on those motions and on October 30, 2006, the United States District Court for
the Southern District of New York granted summary judgment in favor of us, ruling that we do not infringe the Furnace Brook patent
as a matter of law. On November 9, 2006, Furnace Brook filed a notice of appeal to the United States Court of Appeals for the Federal
Circuit. On January 16, 2007, we filed a brief with the Federal Circuit Court and the appeal is now pending.
On August 11, 2005, along with a shareholder plaintiff, we filed a complaint against Gradient Analytics, Inc.; Rocker Partners,
LP; Rocker Management, LLC; Rocker Offshore Management Company, Inc. and their respective principals. We, along with a second
shareholder plaintiff, filed the complaint in the Superior Court of California, County of Marin. On October 12, 2005, we filed an
amended complaint against the same entities alleging libel, intentional interference with prospective economic advantage and
violations of California's unfair business practices act. On March 7, 2006, the court denied the defendants demurrers to and motions to
strike the amended complaint. The defendants each filed a motion to appeal the court's decision, we responded and the California
Attorney General submitted an amicus brief supporting our view; the court has ruled that this appeal stays discovery in the case. The
California Court of Appeals informed the parties that it is ready to rule on the appeal without oral argument; the defendants, however,
have requested oral argument. The appeal has not yet been scheduled for oral argument. We intend to pursue this action vigorously.
On May 9, 2006 the Company received a notice of an investigation and subpoena from the Securities and Exchange Commission,
Salt Lake City District Office. The subpoena requested a broad range of documents, including, among other documents, all documents
relating to the Company's accounting policies, the Company's targets, projections or estimates related to financial performance, the
Company's recent restatement of its financial statements, the filing of its complaint against Gradient Analytics, Inc., the development
and implementation of certain new technology systems and disclosures of progress and problems with those systems, communications
with and regarding investment analysts, communications regarding shareholders who did not receive the Company's proxy statement
in April 2006, communications
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