Overstock seeks ruling denying infringement

Salt Lake-based Overstock.com Inc., an online seller of excess inventory, has sued Applied Interact LLC, seeking a ruling that it doesn't owe patent royalties for conducting sweepstakes or offering downloadable coupons on the Internet.

Overstock, led by Chief Executive Officer Patrick Byrne, sued Applied Interact Feb. 2 in New York, seeking a ruling, called a declaratory judgment, that Overstock hasn't infringed two patents and a separate ruling that the patents are invalid. Closely held Applied Interact threatened to sue over the patents, Overstock said.

"Applied Interact has demanded that Overstock pay a lump sum license fee or face suit for patent infringement," Overstock said in its complaint. "Overstock is unwilling to accede to Applied Interact's threats."

Applied Interact set licensing rates for companies seeking to use its patent for the kind of online sweepstakes offered by Overstock, Bradley Corsello, a lawyer for Applied Interact, wrote in a Nov. 1 letter to Overstock included in court papers.

Corsello wrote that the sweepstakes patent was issued to his company in 1996 and Applied Interact eventually required two other companies it sued — Coty Inc., a fragrance maker, and Vermont Teddy Bear Inc., a seller of teddy bears — to get licenses. Applied Interact charges companies with sales of more than $500 million a fee of $200,000, the letter said.

Overstock denied in its complaint that it infringed Applied Interact's patent.

A telephone call to Corsello's New York office wasn't immediately returned.

Overstock, a seller of electronics, jewelry, furniture and other merchandise, on Monday reported a 2006 net loss of $96.9 million, or $4.77 a share. The company has posted a loss every year since it went public in 2002.

Shares of Overstock fell 45 cents, or almost 3 percent, to close at $14.66 Monday on the Nasdaq Stock Market.