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While RealNetworks was celebrating in New York Monday the re-launch of its Web site and a new version of the RealPlayer, back at corporate headquarters in Seattle the firm was being served with a class-action lawsuit over the widely publicized privacy flaw in its RealJukebox music player.

Jeffrey Wilens, the plaintiff in the suit filed November 4 in Orange County Superior Court, accuses Real of invasion of privacy, trespass, and unfair competition. An attorney who practices consumer protection law, Wilens alleges that Real (RNWK) violated state business statutes when it failed to pay RealJukebox users the market value of the information it captured from their computers.

Last week, Real admitted that its RealJukebox assigned a personal ID number to users and uploaded information about their listening habits to its servers. But the company quickly released a patch to disable the ID number, and said it used the data only for personalizing the service and never sold it to third parties.

"It's still a burglary if I go into your house and steal your diary, even if I don't read it or sell it to the National Enquirer. They committed a burglary on computers," Wilens told InternetNews.

Jeffrey Spencer, the attorney handling Wilen's case, will ask the court for compensatory and punitive damages of $500 dollars per user in California, an amount which could reach $500 million based on their estimate that 1 million of the more than 16 million registered RealJukebox users are in California.

Joel Reidenberg, a law professor at Fordham University who specializes in data privacy law, said a court is likely to agree that Real misappropriated the value of the data that it gathered. Real's actions may also violate laws in other states and even federal law, according to Reidenberg.

"This is not a frivolous lawsuit by any stretch of the imagination. This case and cases like it that can be brought in other jurisdictions against Real Networks could threaten the viability of the company. This was a big enough and egregious violation that they should be sued in many states," said Reidenberg.

Real Networks officials were not immediately available to comment on the lawsuit. TRUSTe, the industry watchdog group that certified the privacy statement at Real's web site, said Monday it would not launch a formal investigation of Real's actions because they involve software, whereas TRUSTe's charter is to police Web privacy practices only.

Word of the class action was welcomed by Jamie McCarthy, a programmer and activist in Michigan, who said that because TRUSTe is funded by member Internet companies, it has an inherent conflict of interest. According to McCarthy, Real's broken privacy promises should not go unpunished.

"If they can get away with it, then other corporations will realize they can get away with it as well. And there will be no end to what this software does. If we're going to be installing software on our computers without being able to see the source code, and we just have to trust the corporation, the only recourse we have is to know that it's going to be unprofitable for the corporation to steal our privacy."

Real's stock yesterday shot up ten percent to a 52-week high on news of the site redesign and the new RealPlayer 7 software. According to Wilens, legal action has become the only way to get the attention of high-flying Internet companies with unethical business practices.

"This is the first of a series of lawsuits that will be coming over the years to rein in the frontier mentality that these Internet pioneers have. They are on the cutting edge, but they also aren't too concerned about some of the things traditional businesses would be concerned about. I just don't think you'd see a regular business doing something like this."

Wilens' lawsuit could itself be foiled, however, by failing to meet an ethics test. A frequent participant on the RealNetworks message board in Yahoo's Finance Center, Wilens admits that he bought a short position in the stock upon hearing about the privacy issue last week, expecting that the stock would go down. Wilens claims there's nothing improper about such an investment because he's not an company insider, but Reidenberg of Fordham says a court may view Wilen's situation differently.

"It certainly calls into question his motivation for filing the suit. If it's not illegal, to me its certainly not ethical. And most states have a `doctrine of clean hands' -- come into court with dirty hands and the court will throw you out," Reidenberg said.