News

Court Rejects Microsoft, Best Buy Appeal

The Supreme Court rejected an appeal by Microsoft and a unit of Best Buy to dismiss a lawsuit alleging violation of racketeering laws.

• By The Associated Press
• 10/15/2007

The companies asked the justices to overturn a May ruling by the San Francisco-based 9th U.S. Circuit Court of Appeals, which said the civil suit could proceed. The Supreme Court is letting that ruling stand, which means the class-action lawsuit involving thousands of consumers with complaints against the companies will be litigated in federal district court.

Originally filed by one consumer in northern California, the lawsuit claims the companies' joint venture violated the Racketeer Influenced and Corrupt Organizations Act, or RICO, which is usually used in organized crime cases. Successful RICO claims provide for triple damage awards in civil cases.

In a friend-of-the-court filing on behalf of the companies, the U.S. Chamber of Commerce said the filing of civil cases invoking RICO is out of control and urged the Supreme Court to hear the case as a way to determine whether the use RICO should be reined in.

Under the joint venture, Microsoft invested $200 million in Best Buy in April 2000, and agreed to promote the company's online store through its Internet access service, MSN. In turn, Best Buy agreed to promote MSN in its stores.

The dispute began in 2003, when James Odom sued the companies after purchasing a laptop computer at a Best Buy store. Odom alleged that Best Buy included a software CD with his purchase that provided a six-month free trial to MSN.

Best Buy allegedly signed Odom up an MSN account with the credit card Odom used to pay for the computer. After a six-month free trial ended, Microsoft began charging him for the account, the suit charged.

Odom is one of two lead plaintiffs in a class-action suit involving thousands of consumers with similar claims, said Daniel Girard, a lead attorney on the case in San Francisco.

The lawsuit alleges the companies violated RICO by engaging in wire fraud when they electronically transmitted the plaintiffs' financial information. The plaintiffs are claiming damages in the "tens of millions," which if tripled would top $100 million, Girard said.

Microsoft has denied illegal conduct in response to these allegations and a Best Buy spokeswoman says the company does not comment on pending litigation.

In papers filed in court, the companies said their joint marketing agreement did not constitute an ongoing "enterprise," as required under the RICO statute.

The appeals court ruling that the companies' venture constituted an enterprise would greatly expand RICO's scope, Microsoft and Best Buy said.

The 9th Circuit's decision would "convert a statute designed to eradicate organized crime into a tool to induce settlements from legitimate businesses," the companies said. Most corporations "cannot risk the possibility of an award of treble damages" or the "reputational injury" of being sued under a law "associated with racketeers and mobsters," they added.

In its filing, the Chamber said civil RICO "is becoming one of the most frequent and damaging devices used against businesses." Over 4,500 RICO cases have been filed since 2001, the Chamber said, with only 35 of those filed by the government.

The case is Microsoft Corp. v. Odom, 07-138. Chief Justice John Roberts did not participate in the decision to turn down the case, the court said. As is customary, no reason was given, but Roberts' 2006 financial disclosure shows he owned Microsoft stock that year.

Shares of Microsoft rose 5 cents to $30.21 in morning trading Monday. Best Buy shares fell 23 cents to $49.48.