A federal appeals court on Wednesday revived a proposed class-action lawsuit against Microsoft that claims the Xbox 360 damages gaming discs, rendering them unplayable.

The 9th US Circuit Court of Appeals said a lower court had misconstrued the court's own precedent when it ruled that Xbox owners in the US could not collectively sue Microsoft for damages.

".... [A]lthough individual factors may affect the timing and extent of the disc scratching, they do not affect whether the Xboxes were sold with a defective disc system. Plaintiffs contend that (1) whether the Xbox is defectively designed and (2) whether such design defect breaches an express or an implied warranty are both issues capable of common proof. We agree," the San Francisco-based court ruled (PDF).

In the lower courts, Microsoft had successfully argued that individual proof by each person seeking damages was required. The court said Microsoft's position was "inapt" because the "plaintiffs’ position is that the design defect itself breaches the express warranty."

The San Francisco-based appeals court, while not ruling on the merit's of the accusations, did not agree with Microsoft.

"... [P]roof that the allegedly defective disc system caused individual damages is not necessary to determine whether the existence of the alleged design defect breaches Microsoft’s express warranty. Rather, plaintiffs' breach of express warranty claim presents a common factual question—is there a defect?—and a common mixed question of law and fact—does that defect breach the express warranty?" Judge Johnnie Rawlinson wrote for the 3-0 appeals court.

"The district court erred in finding that individual issues of causation predominate over these common questions," Rawlinson continued.

Class-action cases can be more costly to a company than individual lawsuits.

The suit claims that vibrations or small movements of the gaming console can cause the optical drive to scratch discs. Microsoft was accused of knowing about the alleged issue before the Xbox 360 launched in 2005. A Microsoft manager, Hiroo Umeno, said in a court document that the company was well aware of the damage that could be caused to discs when players repositioned their consoles. "This is ... information that we as a team, optical disc drive team, knew about. When we first discovered the problem in September or October, when we got a first report of disc movement, we knew this is what’s causing the problem," Umeno said.

Three years after the console's debut, Microsoft racked up some 55,000 complaints about the issue. Microsoft, which said that gamers' misuse was the cause, argued that the case should be dismissed because 0.4 percent of console owners reported problems.

Microsoft said in a statement Wednesday that the company won in the lower courts and that the "facts are on our side."