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CORRESP
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Division
of Corporation Finance

Mail Stop 3561

Securities
and Exchange Commission

100
F Street, NE

Washington,
D.C. 20549-0404

October 20,
2009

  Attention:

  Andrew
  Mew

  Accounting
  Branch Chief

  Division
  of Corporation Finance

  Re:

  Overstock.com, Inc.

  SEC Comment Letter dated October 1, 2009

  Form 10-K Amendment No. 1 for the fiscal year ended
  December 31, 2008; Filed March 5, 2009

  Forms 10-Q for the fiscal quarters ended June 30, 2009; Filed
  July 31, 2009

  File No. 0-49799

Dear
Mr. Mew:

We
write in response to your letter dated October 1, 2009 regarding the
above-referenced filings.  This letter supplements our letter to you dated
October 16, 2009, and responds to your comment No. 7 in your October 1,
2009 letter.

Commentary
— Gross Profit and Gross Profit Percentage, page 57

7.                                      We read your disclosure, “In
addition, during Q4 2008, we reduced Cost of Goods Sold by $1.8 million for
billing recoveries from partners who were under billed earlier in the year for
certain fees and charges that they were contractually obligated to pay. When
the under billing was originally discovered, we determined that the recovery of
such amounts was not assured, and that consequently the potential recoveries
constituted a gain contingency.  Accordingly,
we determined that the appropriate accounting treatment for the potential
recoveries was to record their benefit only when such amounts became realizable
(i.e., an agreement had been reached with the partner and the partner had the
wherewithal to pay). We are currently reviewing our policies and procedures
surrounding partner supplier cost updates and partner billing processes to
ensure that the amounts contractually negotiated are billed in a complete and
timely manner. We may have further billing recoveries from our partners in the
future that we will seek to recover.” Please address the following:

Confidential Treatment Requested

By Overstock.com, Inc.

Identifying number OSTK

1

Before addressing each of the comments individually,
we thought it helpful to detail the background facts related to the fulfillment
partner under billing as follows:

At
the beginning of 2008, we engaged an external process improvement consulting
firm to assist us in identifying operational improvements related to our
warehouse operations and our returns process.

In
late June 2008, we provided the returns data for one of our larger
fulfillment partners to the consulting firm.
The consulting firm was working directly with both our fulfillment
partner and a Company employee in doing some analysis regarding the historical
data. The fulfillment partner provided us with a record of the returns of
merchandise originally sold and returned through Overstock.com which did not
match the operational data that we had internally generated and provided to the
consultants.  We assumed that the
fulfillment partner data came from the billing statements we provided to them
as fulfillment partner billing transactions are created systematically through
an automated process.  We compared our
operational data to the billing statements for this fulfillment partner and
discovered that we were not billing them for a portion of return costs related
to Overstock.com’s cost and handling of their returned products.  We assumed, then, that the under billing
related to this partner was also likely potentially occurring with other
fulfillment partners as well and upon further review, verified that this was
the case.

We
spent the next few months (July-October of 2008) reviewing our entire
partner billing process to determine what had changed in our system to cause
the under billing issues. During that process, we identified the cause of the
under billing issue, as well as some smaller over billing issues, leaving a net
under billing to our partners. We then determined the time period that this
related to, and quantified the amount of the under billing by partner. By the
end of October we had remediated the issues in our system, and we had
determined that these operational issues occurred from January 2007 until
our final correction and remediation in October 2008. The total net under
billing was [Note 1] and related to 1,198 partners.  Pursuant to your request and Rule 12b-4
under the Exchange Act, we are providing to you supplementally a schedule of
the affected partners and net under billing amounts, which we request that you
return to us upon the conclusion of your review.

During
the first two weeks of November, we began to contact partners to notify them of
the under billing issue and to begin our negotiations with each one regarding
the possibility of recovering certain of the under billing amounts. We provided
to each partner a detail of the net under billing transactions so that they
could review and respond to us regarding any questions or concerns.  In our original correspondence, we offered to
forgive all 2007 under billing amounts if they would negotiate with us for the
under billing amounts related to 2008. We also offered to deduct these amounts
from our remittances to partners from our future sales of their products on our
website. For the few larger fulfillment partners with net under billings
greater than $20,000 during 2008, we set up conference calls with our SVP of
Finance and SVP of Merchandising to contact each fulfillment partner directly
to discuss the issues, answer any questions and negotiate

Confidential Treatment Requested

By Overstock.com, Inc.

Identifying number OSTK

2

recovery
of the under billings.  For the many
smaller fulfillment partners, our partner account managers and our
merchandising employees who work closely with these partners on a day-to-day
basis also contacted them to discuss questions and concerns.  Many partners also called their respective
partner account manager directly once they received our notice.  We then gave them some time to review the
supporting documentation that we had provided and to respond to us to discuss
the final resolution of this matter.

The
negotiations with our 1,198 fulfillment partners took substantial time and
effort [Note 2].  In each case we were
balancing our desire to recover the under billings with our desire to maintain
the relationship with our fulfillment partners.

During
Q4 2008, we were able to reach a tentative or general understanding with most
of our partners on an amount of under billings that we would be able to recover
and the time line to deduct these amounts from our future sales of their
products on our website. [Note 3].  We ultimately
recovered $1.8 million in Q4 2008, $460,000 in Q1 2009, $80,000 in Q2 2009,
$40,000 in Q3 2009, and estimate an additional $34,000 in Q4 2009, at which
time the majority of previous under billings will have been recovered or
written off.

Following
are specific answers to your questions:

·                  Summarize for us when and how the
under billing issue was originally discovered and what financial periods were
affected by this issue. Please be detailed in your response.

See the background section detailed above.

The period affected by the under billing
occurred was between January 2007 until our final resolution of the system
issues in October 2008.

·                  Please explain to us the nature
of the fees and charges your partners were contractually obligated to pay. Tell
us if such amounts were related to reimbursements due from your fulfillment
partners made in connection with the refund and credit errors.

The
nature of the fees and charges our partners were contractually obligated to pay
were: 1) return processing fees for returned product processed at our
warehouse; 2) reimbursement of return-related shipping costs; and 3) product
costs, in the case that product was determined to be defective or damaged when
the customer received it, and as a result, the product was returned to the
fulfillment partner.  The fees that we
had over billed were primarily related to reimbursement of shipping costs that
we had improperly billed to them based on the terms of our agreement. Note that
the net under billings were not directly related to the refund and credit
errors.

Confidential Treatment Requested

By Overstock.com, Inc.

Identifying number OSTK

3

·                  Citing for us the relevant GAAP literature, explain to us why this
under billing error was not previously corrected in your restated December 31,
2007 Form 10-K, and your March 31, 2008, and June 30, 2008 Forms
10-Q.

When determining the appropriate accounting
treatment for the potential under billing recoveries, we first considered the
basic definition of an asset as contained in the Statement of Financial
Accounting Concepts No. 6, Elements of Financial
Statements.  Paragraph 25 of
that statement defines assets as “probable future economic benefits obtained or
controlled by a particular entity as a result of past transactions or events.”

At the time the under billing situation was
identified and quantified, we determined that the future economic benefit
associated with the issue (i.e., the recovery of cash from our fulfillment
partners) was not controlled by Overstock.com as such benefit was dependent
upon 1) reaching an agreement with our billing partners based upon a new
negotiation for the recovery of under billings, and 2) the future sale of
partner products on our website.  Our
billing partners were under no obligation to either enter into these
negotiations or to offer products for sale on our website in the future.  We believe that most of our fulfillment
partners are distributors operating under thin gross margins without
significant amounts of cash in reserve to be able to pay for amounts that are
not billed in the ordinary course of business.
As such, we believe that there was little likelihood of being able to
recover the under billing amounts under the original contractual terms of our
partner arrangements.

We also determined that the future economic
benefit associated with the under billing issue was not solely a result of past
transactions or events as specified in Concepts Statement No. 6.  Although there is not a significant amount of
authoritative guidance in this area, we drew an analogy to two other areas of
accounting.  In the area of revenue
recognition, gains or benefits related to sales transactions can only be
recognized when persuasive evidence of an arrangement exists.  As previously stated, we believe that our
partners assumed that the amounts due to Overstock.com were based upon the
amounts shown in the partner billing statements, irrespective of the
contractual terms entered into by the parties.
We believe that at the time the under billings were discovered, an
arrangement with the partners did not exist that would result in future economic
benefit to the Company beyond the amounts originally billed.

We also considered authoritative guidance in
the areas of sale/leaseback transactions and disposition of assets.  In these areas, significant future
participation by the seller related to the transaction in question mandate that
the economic benefits associated with such transactions be deferred until such
time as the future participation has been satisfied.  We considered the fact that, even after
coming to an agreement with our partners for the reimbursement of certain of
the under billing amounts, the partner was under no obligation to continue to
list its products for sale on our website.
Conversely, Overstock.com had significant

Confidential Treatment Requested

By Overstock.com, Inc.

Identifying number OSTK

4

participation in the transactions and events
that could potentially give rise to the recoveries based on its obligation to
list and sell the partners’ products on our website (with all correspondent
processes related to our partner business).

As specific evidence of the fact that the
future economic benefits associated with the under billing issue were not in
the control of the Company, we note that we were only able to negotiate with
our partners to potentially receive $2.4 million of the total [Note 4] of under
billings.  We also note that such
recoveries were only achieved after the two events which occurred in the fourth
quarter of 2008 and subsequent to that date, namely the negotiation of a
settlement amount with our partners and the sale of partner merchandise on our
website.  Based upon these factors, we
determined that it was inappropriate to record the benefits associated with the
recoveries in our financial statements as of and for the periods ended December 31,
2007, March 31, 2008 and June 30, 2008.

·                  Explain to us how many
fulfillment partners were under billed and the amount of under billing per
fulfillment partner. In this regard, please provide to us a list of the under
billed fulfillment partners. Please ensure the list contains the names of the
fulfillment partners and the amount of original under billing per partner. In
your response, tell us the total amount and timing of collections to date, by
fiscal quarter, from your fulfillment partners subsequent to the discovery of
this issue.

At the end of October 2008, we had
determined that these under billed amounts occurred between January 2007
until October 2008, and the total net under billing was [Note 5], which
related to 1,198 partners.  Pursuant to
your request and Rule 12b-4 under the Exchange Act, we are providing to
you supplementally a schedule of the affected partners and net under billing
amounts, which we request that you return to us upon the conclusion of your
review.  The total amount and timing of
collections to date, by fiscal quarter, from our fulfillment partners
subsequent to the discovery of this issue is set forth in the last paragraph of
the background facts described above.

·                  Please tell us the relevant GAAP
literature supporting such under billing recoveries as a gain contingency.
Further, please explain why such recoveries were not previously considered
realizable and accrued with a provision for amounts estimated to be uncollectible.

Please see our response to the third bullet
point of this comment.

After
we determined that the potential recovery of the under billing amounts did not
qualify as an asset, we considered the significant uncertainty around the
amounts involved and their ultimate resolution, and determined that this was a
contingency that needed to be reviewed under Statement of Financial Accounting
Standards No. 5, Accounting for
Contingencies (“SFAS No. 5”) or ASC 450-30-25.  SFAS No. 5 or ASC 450-30-25 defines a
contingency as “an existing condition,

Confidential Treatment Requested

By Overstock.com, Inc.

Identifying number OSTK

5

situation,
or set of circumstances involving uncertainty as to possible gain or loss to an
enterprise that will ultimately be resolved when one or more future events
occur or fail to occur.” We believe that this definition of contingency
accurately depicts the circumstances that existed around this issue.

FASB
Concepts Statement No. 5,  Recognition and Measurement in Financial Statements of a Business
Enterprise provides further guidance for the recognition of gains by
specifying that the recognition of a gain involves the consideration of whether
or not an asset is 1) realized or realizable and 2) earned.  As previously stated, we do not believe that
the future economic benefits related to the potential recovery of under billed
amounts constituted an asset until the recovery amounts had been negotiated
with the partners and Overstock.com had taken the actions necessary to make
such assets realizable (i.e., sold the partners’ future products on our
website).  We believe that even after the
recovery amounts had been negotiated with the partners, the future economic
benefits related to the recoveries did not constitute an asset or a gain to the
Company as the amounts had not been