Overstock.com 2006 Annual Report Download - page 26

Download and view the complete annual report

Please find page 26 of the 2006 Overstock.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 122

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122

Gradient Analytics and Rocker Partners, L.P. Litigation
In August 2005 we filed an unfair business practice lawsuit against Gradient Analytics, Rocker Partners, L.P. and others, alleging
that the defendants have conspired to denigrate Overstock's business for personal profit. In October 2005 we filed an amended
complaint alleging additional causes of action and articulating in greater detail the allegations against the defendants. Overstock's
Chief Executive Officer, Dr. Patrick Byrne, has appeared on nationally syndicated television programs and elsewhere to discuss the
litigation. The use of management's time and attention in connection with the litigation and related matters may reduce the time
management is able to spend on other aspects of our business, which may have adverse effects on other aspects of our business. To the
extent that any such adverse effects exceed any benefits we may realize from pursuing the litigation, our business, prospects, financial
condition and results of operation may suffer.
Prime Broker Litigation
In February 2007, along with five shareholder plaintiffs, we filed a lawsuit in the Superior Court of California, County of San
Francisco against Morgan Stanley & Co. Incorporated, Goldman Sachs & Co., Bear Stearns Companies, Inc., Bank of America
Securities LLC, Bank of New York, Citigroup Inc., Credit Suisse (USA) Inc., Deutsche Bank Securities, Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., and UBS Financial Services, Inc. The use of management's time and attention in connection with the litigation
and related matters may reduce the time management is able to spend on other aspects of our business, which may have adverse
effects on other aspects of our business. To the extent that any such adverse effects exceed any benefits we may realize from pursuing
the litigation, our business, prospects, financial condition and results of operation may suffer.
We may be liable if third parties misappropriate our customers' personal information.
If third parties are able to penetrate our network security or otherwise misappropriate our customers' personal information or
credit card information, or if we give third parties improper access to our customers' personal information or credit card information,
we could be subject to liability. This liability could include claims for unauthorized purchases with credit card information,
impersonation or other similar fraud claims. This liability could also include claims for other misuses of personal information,
including unauthorized marketing purposes. These claims could result in litigation. Liability for misappropriation of this information
could adversely affect our business. In addition, the Federal Trade Commission and state agencies have been investigating various
Internet companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if government agencies investigate our privacy practices.
We rely on encryption and authentication technology licensed from third parties to provide the security and authentication
necessary to effect secure transmission of confidential information such as customer credit card numbers. We cannot assure you that
advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a
compromise or breach of the algorithms that we use to protect customer transaction data. If any such compromise of our security were
to occur, it could harm our reputation, business, prospects, financial condition and results of operations. A party who is able to
circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be
required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by
such breaches. We cannot assure you that our security measures will prevent security breaches or that failure to prevent such security
breaches will not harm our business, prospects, financial condition and results of operations.
25