Research Firm Fails to Get Suit Dismissed

A judge on Wednesday refused to throw out Overstock.com Inc.’s lawsuit against Gradient Analytics Inc., rejecting an argument that the research company’s reports criticizing Overstock were protected free speech.

Superior Court Judge Vernon Smith in San Rafael, Calif., tentatively denied Gradient’s request for dismissal under a California statute that shields companies from suits aimed at stifling free speech. Overstock.com claims Gradient issued false reports about the company.

Gradient’s reports, “although liberally couched in terms of opinion” implied that Overstock.com engaged in “accounting improprieties that could be construed as statement of fact,” Smith said.

The Securities and Exchange Commission has subpoenaed journalists, including Dow Jones & Co.’s Herb Greenberg and CNBC’s Jim Cramer, in connection with the case.

The agency at least temporarily withdrew the subpoenas after SEC chairman Christopher Cox said he would review the requests.

Gradient spokeswoman Karen Hinton said her company began covering Overstock.com in June 2003 when the shares were trading around $13.

The stock climbed to about $76 during the year and a half Gradient covered it, Hinton said. Overstock.com’s claims are aimed at harassing the company’s critics, she said.

Overstock.com Chief Executive Patrick Byrne has claimed that Gradient, hedge funds and journalists conspired to spread negative information about his company to help short sellers, who borrow securities in hopes of making a profit by paying for it after the price drops.