Overstock.com 2007 Annual Report Download - page 120

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Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
12. COMMITMENTS AND CONTINGENCIES (Continued)
amount of trading in the Company's stock as well as dramatic declines in the share price of the Company's stock. The suit asserts that a persistent large
number of "fails to deliver" creates significant downward pressure on the price of a company's stock and that the amount of "fails to deliver" has exceeded the
company's entire supply of outstanding shares. The suit accuses the defendants of violations of California securities laws and common law, specifically,
conversion, trespass to chattels, intentional interference with prospective economic advantage, and violations of California's Unfair Business Practices Act.
The Company is seeking damages of $3.48 billion. In April 2007 defendants filed a demurrer and motion to strike the Company's complaint. The Company
opposed the demurrer and motion to strike. In July 2007 the court substantially denied defendants' demurrer and motion to strike. In November 2007, the
defendants filed additional motions to strike. In February 2007, court denied defendants' motion to strike the Company's claims under California's Securities
Anti-Fraud statute and defendants' motion to strike the Company's common law punitive damages claims, but granted in part the defendants' motion to strike
Overstock's claims under California's Unfair Business Practices Act, while allowing the Company's claims for injunctive relief under California's Unfair
Business Practices Act. The parties have begun discovery in this case. The Company intends to vigorously prosecute this action.
On March 29, 2007, the Company, along with other defendants, was sued in United States District Court for the Eastern District of Texas, Tyler
Division, by Orion IP, LLC. The suit alleges that the Company and the other defendants infringe two patents owned by Orion that relate to the making and
using supply chain methods, sales methods, sales systems, marketing methods, marketing systems, and inventory systems. On April 30, 2007, the Company
filed an answer denying Orion's allegations and a counterclaim asserting that Orion's patent is invalid. The case is in its discovery stages. The court has set a
trial date of May 2009. As it has consistently done with similar suits filed by patent trolls, the Company intends to vigorously defend this action.
On October 5, 2007 the Company was served as defendant in a case alleging violations of the Fair and Accurate Credit Transactions Act (the "Act"). The
plaintiff alleged that, because the Company followed an industry practice of displaying to the customer on a confirmation page the expiration date of the
customer's credit card while the customer was online and logged into the customer's own account, the Company has violated certain provisions of the Act
which prohibit a merchant from printing the credit card expiration date on a receipt. Filed in the U.S. District Court, Southern District of Illinois, the case was
styled as a class action lawsuit on behalf of the nominative plaintiff and all others similarly situated. On November 13, 2007, the Company moved to dismiss
or stay the case or transfer venue. On December 27, 2007, the court dismissed the complaint without prejudice on the basis that the complaint should have
been brought under the arbitration agreement between the plaintiff and the Company. Plaintiff has not appealed the dismissal, and the time for appeal has
expired.
13. REDEEMABLE COMMON STOCK
Redeemable common stock relates to warrants and securities that were subject to rescission. Sales of 858,000 shares of the common stock and the
issuance of 185,000 warrants to certain individuals may not have fully complied with certain requirements under applicable State Blue Sky Laws. The offer
and sale of these securities were not made pursuant to a registration statement and the Securities Act of 1933, nor were the offer and sale registered or
qualified under any state securities laws. Although the Company believed at the time that such offers, sales and conversion were exempt from such
F-31