Supreme Court Fails to Distinguish Microsoft from Mafia
By: Daniel R. Ballon, Ph.D
10.18.2007
The Supreme Court this week refused to review a Ninth Circuit Court of Appeals decision allowing a RICO suit against Microsoft and Best Buy to proceed in civil court. For those not familiar with Tony Soprano or the Gambino crime family, the Racketeer Influenced and Corrupt Organizations Act (RICO) was passed by Congress in 1970 with the clear intent to "seek the eradication of organized crime in the United States." How can this same tool be used by disgruntled customers to threaten and extort Fortune 500 companies? The answer lies in a provision within the statute which permits "any person injured in his business or property" on account of a RICO violation to file a civil suit in district court. This isn't particularly ground-breaking, since all of these qualifying violations (ranging from murder to copyright infringement) are already illegal, and therefore actionable. Under RICO, however, a plaintiff is entitled to "threefold the damages he sustains." A lead attorney in the Microsoft/Best Buy case believes that this clause entitles his clients to more than $100 million. The civil provisions of RICO were intended to enable citizens to fight back against organized crime in their neighborhoods. This includes not just the mafia, but also gangs, drug dealers, and even corrupt politicians. For the first ten years of its existence, RICO was applied almost exclusively for its intended purpose. In the 1980's, however, civil lawyers noticed that mail and wire fraud are included as qualifying violations under the statute. They quickly realized that any civil claim could be turned into a RICO case if the defendants used a telephone at least twice in furtherance of their crime. Since adding a RICO claim to a civil suit triples the damages, this has become common practice. In a friend-of-the-court brief filed by the US Chamber of Commerce in the Microsoft case, they find that "since 2001, a staggering 4500 civil RICO cases have been filed, only 35 of which were brought by the government." While RICO cases have been filed against accounting firms, abortion clinic protesters, and Don King, virtually no cases involve the mafia. It is particularly troubling that the threat of triple damages can be used in RICO suits to extort large settlements from legitimate businesses. This is ironic, considering that RICO statutes were designed to protect against extortion. In Odom v. Microsoft, a Best Buy customer alleges that he was fraudulently charged for Microsoft's Internet service without permission when he purchased a new laptop. The key issue for the Ninth Circuit, however, was not whether Microsoft and Best Buy defrauded customers, but whether their business arrangement constituted a criminal "enterprise" under RICO. Microsoft and Best Buy are not participants in an organized criminal underworld, as envisioned in the RICO statute. Rather, they are publicly traded companies which entered into an open and transparent marketing arrangement. If Microsoft or Best Buy acted alone in defrauding customers, they could not be sued under RICO (though they could still be sued for fraud). Subjecting companies to the threat of triple damages merely for entering into a business agreement could have a chilling effect on commerce in every sector of the economy. Innovation requires a free flow of information and ideas. By threatening legitimate business agreements with what the US Chamber of Commerce's Robin Conrad calls "the litigation equivalent of a thermonuclear device," the Court has created a significant roadblock for innovation which will impede economic growth and damage America's competitiveness in the global economy.
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