Overstock.com 2008 Annual Report Download - page 29

Table of Contents
Customers may be unwilling to use the Internet to purchase goods.
Our long-term future depends heavily upon the general public's willingness to use the Internet as a means to purchase goods. E-
commerce remains a relatively new concept and large numbers of customers may not begin or continue to use the Internet to purchase
goods. The demand for and acceptance of products sold over the Internet are highly uncertain and most e-commerce businesses have a
short track record. If consumers are unwilling to use the Internet to conduct business, our business may not develop profitably.
The security risks or perception of risks of e-commerce may discourage customers from purchasing goods from us.
In order for the e-commerce market to develop successfully, we and other market participants must be able to transmit
confidential information securely over public networks. Third parties may have the technology or know-how to breach the security of
customer transaction data. Any breach could cause customers to lose confidence in the security of our Website and choose not to
purchase from our Website. If someone is able to circumvent our security measures, he or she could destroy or steal valuable
information or disrupt our operations. Concerns about the security and privacy of transactions over the Internet could inhibit the
growth of the Internet and e-commerce. Our security measures may not effectively prohibit others from obtaining improper access to
our information. Third parties may target our customers directly with fraudulent identity theft schemes designed to appear as
legitimate communications from us. Any security breach or fraud perpetrated on our customers could expose us to increased costs and
to risks of loss, litigation and liability and could seriously disrupt our operations.
Credit card fraud could adversely affect our business.
We routinely receive orders placed with fraudulent credit card data. We do not carry insurance against the risk of credit card
fraud, so the failure to adequately control fraudulent credit card transactions could reduce our net revenues and our gross profit
percentage. We have implemented technology to help us detect the fraudulent use of credit card information. However, we may in the
future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial institution
approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions because
we do not obtain a cardholder's signature. If we are unable to detect or control credit card fraud, our liability for these transactions
could harm our business, results of operation or financial condition.
If one or more states successfully assert that we should collect sales or other taxes on the sale of our merchandise or the
merchandise of third parties that we offer for sale on our Website, our business could be harmed.
We do not currently collect sales or other similar taxes for physical shipments of goods into states other than Utah. One or more
local, state or foreign jurisdictions may seek to impose sales tax collection obligations on us because we are engaged in online
commerce, even though we have no physical presence in those jurisdictions. The future location of our fulfillment centers and
customer service center networks, or any other operation of the company, establishing a physical presence in states where we are not
now present, may result in additional sales and other tax obligations. We challenged the constitutionality of a New York state law
which requires internet retailers to collect and remit New York sales taxes on their New York sales, even if the seller has no New
York tax "nexus" other than with New York based independent contractors who are internet advertising affiliates. The trial court
dismissed our challenge and we are appealing the dismissal. As a result of the enactment of the New York law, we terminated our
relationship with New York based advertizing affiliates. Several other states currently have legislative proposals similar to New
York's tax law, and if such laws are evaluated and constitutionally upheld, we may have to elect to discontinue in those states valuable
marketing through the use of affiliates based in those states, or begin in those states the collection of the taxes. In either event, our
business could be harmed and our business could be adversely affected if one or more states or any foreign country successfully
asserts that we should collect sales or other taxes on the sale of our merchandise in compliance with these or any other state law.
Existing or future government regulation could harm our business.
We are subject to the same federal, state and local laws as other companies conducting business on the Internet. Today there are
relatively few laws specifically directed towards conducting business on the Internet. However, due to the increasing popularity and
use of the Internet, many laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and
regulations could cover issues such as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation,
advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as
property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm
our business. For example, United States and foreign laws regulate our ability to use customer information and to develop, buy and
sell mailing lists. The vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address
the unique issues raised thereby. Those laws that do reference the Internet are only beginning to be interpreted by the courts and their
applicability and reach are therefore uncertain. Additionally, laws governing the permissible contents of products may adversely affect
us. Recently the United States Congress passed the Consumer Product Safety Improvement Act ("CPSIA"), which created more
stringent safety requirements for children's products and any products containing lead paint sold within the United States. The CPSIA,
not only regulates the future manufacture of items such as cribs, pacifiers, toys and children's jewelry, but applies to existing
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