No matter how hard Microsoft tries, it can't defeat a judicial order requiring it to face a proposed class-action lawsuit claiming that the Xbox 360 renders gaming discs unplayable because the console scratches them.

The decision (PDF) Monday by the 9th US Circuit Court of Appeals sets the stage either for litigation over the allegations or a Supreme Court showdown.

As we've previously described, here's what the flap is all about:

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 also maintained that aggrieved gamers could bring a suit individually instead of collectively.

The San Francsico-based appeals court originally ruled (PDF) 3-0 against Microsoft in March. The court on Monday set aside Microsoft's renewed plea for the court to rehear the case—which seeks economic damages—with a larger panel of 11 judges. No judge on the nation's largest federal appeals court voted in favor of a rehearing.