Racketeering Case Against Microsoft, Best Buy Revived

Microsoft and Best Buy are facing racketeering charges in a case first brought seven years ago that alleged consumers had MSN accounts activated and were charged for them without their knowledge when they purchased new PCs.

Last Friday, the 9th U.S. Circuit Court of Appeals in San Francisco reinstated the case, which accuses Microsoft and Best Buy of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act.

Allegation of RICO violations are typically seen in cases of organized crime, such as the conviction of mobster John Gotti. Wall Street transgressions have been prosecuted under RICO, including the famous trial of Michael Milken, the so-called "junk-bond king," who was indicted on 98 counts of racketeering and fraud in 1989.

In the Microsoft/Best Buy case, plaintiff James Odom complained that during the purchase of a new computer at Best Buy, he was enrolled in a free-trial subscription to Microsoft's MSN Internet service without his knowledge and then charged for the service once the trial period had expired. He says other customers paying with credit or debit cards also were enrolled in the same fashion.

Odom charged the pair violated RICO in part because of an agreement under which "Microsoft invested $200 million in Best Buy and agreed to promote Best Buy's online store through its MSN service." In return, "Best Buy agreed to promote MSN service and other Microsoft products in its stores and advertising." The agreement, Odom alleged, led to the MSN enrollment issue.

"We conclude that plaintiffs have alleged facts that, if proved, provide sufficient 'evidence that the various associates function as a continuing unit,'" the court wrote in its findings. The "continuing" ruling means the behavior by Microsoft and Best Buy was "ongoing" and not an isolated incident. The court also wrote that if the allegations are true that they establish that the pair shared a common purpose to increase MSN subscribers through "fraudulent means."

The Seattle Post-Intelligencer has posted a copy of the ruling.

Microsoft officials told Bloomberg News that the Circuit Court's ruling was "procedural" and did not reflect on the merits of the case. The paper reported the MSN subscription program at Best Buy concluded in 2003 when Microsoft began to offer refunds to customers.

The case will head to the U.S. District Court in Seattle.