BOSTON -A federal appeals court yesterday revived the government’s online eavesdropping prosecution against an executive of a company that offered e-mail service and surreptitiously tracked its subscribers’ messages.

The case, closely watched by Internet privacy groups, had been dismissed in 2003 by a judge who found it was acceptable for the company – an online literary clearinghouse – to make copies of the e-mails so it could peruse messages sent to its subscribers by rival Amazon.com Incorporated.

An executive of the now-defunct clearinghouse, Interloc Incorporated, was indicted in 2001. Prosecutors argued that intercepting e-mail before the messages were transmitted to recipients amounted to an offense under the federal Wiretap Act.

But the executive, Bradford Councilman, argued that no violation of the Wiretap Act had occurred because the e-mails were copied while in “electronic storage” – in the process of being routed through a network of servers to recipients.

A district court judge in Boston agreed and dismissed the case. Then a three-judge panel of the Boston-based 1st U.S. District Circuit Court of Appeals upheld the dismissal in June 2004, prompting the government to appeal to the full appeals court.

In yesterday’s 5-2 decision, the full court said the e-mail interception could be considered illegal and reinstated the indictment, sending the case back to the district court.

The decision was applauded by one of the advocacy groups that intervened in the case.

“It reaffirms the fact that e-mail is a protected medium under privacy laws, protected from government wiretapping without a warrant and misuse by service providers,” said the spokesman for the Washington-based Center for Democracy and Technology, David McGuire.

The wiretapping law – passed in 1968 and amended in 1986 to address emerging computer technologies – protects the privacy of messages in transit. But the appeals court said yesterday it believes Congress intended the wiretapping prohibitions to apply broadly and include messages in temporary storage “intrinsic to the communications process.”

In a dissenting opinion, Appeals Court Judge Juan Torruella noted that consumers who sign up for e-mail services like the one offered to Interloc’s customers typically consent to privacy agreements. Congress didn’t necessarily intend such privacy rights be controlled by law, he wrote.

“If Interloc did intercept its customers’ messages in breach of a privacy agreement, the remedy lies in contract, not in the Wiretap Act,” Judge Torruella wrote.

A spokeswoman for the U.S. Attorney’s office, Samantha Martin, said the office “was obviously pleased with the decision,” but declined further comment.

An attorney for Mr. Councilman, Andrew Good, said he was reviewing whether to appeal to the U.S. Supreme Court or to go to trial. Yesterday’s split ruling “tells you how difficult this law is to understand and to abide by,” Mr. Good said.

He said Mr. Councilman denies taking part in any interception of e-mail.

According to the indictment, Mr. Councilman directed employees in 1998 to write computer code to intercept and copy all incoming e-mails from Amazon.com to Interloc’s subscribers, who were dealers seeking buyers for rare and out-of-print books. Amazon.com did not then offer used books, but offered customers help in tracking down rare books.

The government alleged that Interloc tried to exploit the Amazon e-mails “to develop a list of books, learn about competitors and attain a commercial advantage.”