Overstock.com Inc. faces a libel suit from a research company the Internet retailer is currently suing for allegedly driving down its share price.

In August 2005, Overstock.com filed a lawsuit against Gradient Analytics Inc. and hedge fund Rocker Partners (now Copper River Partners), alleging that Gradient conspired with Copper to write negative research reports about the company, which drove down its stock price.

Scottsdale, Ariz.-based Gradient filed a cross-complaint April 15 against Cottonwood Heights, Utah-based Overstock and its CEO Patrick Byrne, charging that Byrne libeled the independent research firm in remarks he made to journalists, money managers and market analysts during a number of conference calls and news interviews from 2004 to 2006.

The lawsuit was filed in California's Marin County Superior Court.

“We are strong believers in free speech. We know the difference between free speech and libel. … But, the unsubstantiated and inflammatory comments of Overstock and its CEO are of a different sort and flavor entirely,” Gradient President and CEO Brad Forst said in a statement. “Public companies cannot have license to libel research firms and use litigation to retaliate against analysts who are critical of their business.”

After Overstock filed its case in 2005 the SEC began an investigation into the Overstock charges made in the lawsuit. In February 2007, the SEC terminated its Gradient investigation, recommending no enforcement action. An SEC investigation into Overstock's accounting practices and other dealings and disclosures continues after more than 23 months.

Jonathan Johnson, Overstock.com's chief legal officer, said in a statement that Gradient's action is “bogus” and the company will easily overcome it. “Truth is a defense, and we can back up everything we've said about them,” the statement said.