Overstock Sues Gator, WhenU

Overstock.com filed separate legal complaints against Gator and WhenU.com, alleging the adware companies violated its trademark and engaged in unfair business practices by serving ads on its Web sites.

The suits, filed in U.S. District Court in Overstock’s home state of Utah, also charge Gator and WhenU of engaging in unfair business practices by serving ads from Overstock competitors, interfering with Overstock’s business by diverting customers, and other related claims that go to the heart of Gator’s and WhenU’s business models of ad-supported software.

The Overstock complaint requests injunctions against Gator and WhenU from continuing to serve ads on its sites, Overstock.com and OverstockB2B.com. It also wants financial restitution of triple whatever the firms have made from advertising displayed on Overstock’s Web sites.

At the heart of the cases is whether Gator and WhenU are leaching off publishers or providing a requested service for customers by displaying ads in exchange for the free use of software, such as Gator’s eWallet.

“It is the annoyance of their pop-up ads that interferes with our Web site and the operation of the Web sites,” said Overstock attorney Michael Larson.

Publishers have targeted both firms with a spate of lawsuits alleging that serving ads either under or over their Web sites is illegal. Gator and WhenU, which claim 35 million and 25 million users, respectively, respond their customers freely download the software that serves up contextually relevant ads clearly marked as separate from the Web site the user happens to be visiting.

Scott Eagle, Gator’s chief marketing officer, said the lawsuits have no merit. He noted Overstock was an early endorser of the Gator business model, using it as an advertising vehicle for two years and doing “hundreds of thousands of dollars” worth of business with Gator.

“It’s actually amazing,” Eagle said. “We have huge market acceptance in the retail category.”

An Overstock spokesman admitted the company previously advertised with Gator. Larson said such a previous business relationship would have no bearing on the case’s legal merits.

Overstock joins a long list of plaintiffs facing off against Gator, including fellow retailers TigerDirect and PriceGrabber.com, UPS, Hertz, and L.L. Bean. The cases have been consolidated under multidistrict litigation into a single case. Eagle said he expects a final ruling to come down either late this year or in the first part of 2004.

Since WhenU uses a similar method of serving ads, it also has a number of cases filed against it, including complaints from U-Haul, 1-800 CONTACTS, and Weight Watchers.

Anthony Citrano, a representative for WhenU, declined to comment on the case.

A group of powerhouse publishers, including The New York Times and The Washington Post, sued Gator on similar grounds in June 2002. Although that case was thought to decide whether the business model was legal, the parties reached a surprise settlement in February that left the issue undecided. Neither party disclosed the terms of the settlement.

“In 2003, behavioral and contextual [advertising] exploded,” said Eagle. “This is where the [advertising] model has to go.”

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