A company that provides e-mail service has the right to copy and read any message bound for its customers, a federal appeals court panel has ruled in a decision that could expand e-mail monitoring by businesses and the government.

The 2-to-1 decision by a panel of the U.S. Court of Appeals for the 1st Circuit in Massachusetts alarmed privacy advocates, who said it torpedoes any notion that e-mail enjoys the same protections as telephone conversations, or letters when they are sorted by mail carriers.

The court ruled that because e-mail is stored, even momentarily, in computers before it is routed to recipients, it is not subject to laws that apply to eavesdropping of telephone calls, which are continuously in transit. As a result, the majority said, companies or employers that own the computers are free to intercept messages before they are received by customers.

"This puts all of our electronic communication in jeopardy if this decision isn't reversed." said Jerry Berman, head of the Center for Democracy and Technology, a public interest policy group.

Peter B. Swire, an Ohio State University law professor who was a privacy adviser in the Clinton administration, said the ruling means that an e-mail provider "can intercept all your e-mail with impunity, and can read them and use them for its own business purposes."

Large companies that dominate e-mail services were quick to disclaim any desire to read their customers' e-mail. America Online, Microsoft Corp., EarthLink Inc., Comcast Corp. and Yahoo Inc. have policies governing their terms of service that generally state that they do not read customers' mail or disclose personal information unless required by law enforcement agencies.

"AOL does not monitor or intercept member communications, in accordance with AOL's privacy policy and terms of service," said Nicholas J. Graham, a company spokesman.

EarthLink spokeswoman Carla Shaw said the company does not "retain copies of e-mails, and we don't read individual e-mails."

But a small online company that sold out-of-print book lists did just that, sparking the case decided Tuesday by the appeals court. The now-defunct firm, Interloc Inc., also provided e-mail service to its members.

In January 1998, according to prosecutors, an Interloc vice president, Bradford C. Councilman, directed the firm's engineers to make copies of all incoming mail to its members from Amazon.com Inc., which also sells books.

The government charged that the company, which was later acquired by a California firm, wanted to get an idea of Amazon's book-selling strategy.

Prosecutors charged Councilman with gathering thousands of messages in violation of laws governing interception of wire, oral or electronic communications.

Councilman appealed, claiming that laws prohibiting interception did not apply because the messages were stored as a part of delivery to customers.

Andrew Good, Councilman's lawyer, declined to comment on his client's motives. But Good said no one ever complained about the practice and that the case resulted from a tip in an unrelated investigation.

Good said the decision mirrors other rulings that give employers and companies broad rights over e-mail stored in their systems.

In upholding a lower court decision, the appeals panel majority said Congress intended for "any temporary, intermediate storage" of communication to be governed by laws other than those involving wiretapping or other interception. The court rejected the government's argument that if communication is being transmitted and stored simultaneously, it is protected by interception laws.

"We believe that the language of the statute makes clear that Congress meant to give lesser protection to electronic communications than wire and oral communication," the court said. The judges acknowledged, however, that the wiretap law may now be outdated given advances in technology.

In dissent, Judge Kermit V. Lipez said the majority misread the law and that the ruling "will have far-reaching effects on personal privacy and security."

Like several privacy advocates, the judge raised particular alarm over what the decision might mean for the ability of law-enforcement to monitor e-mail.

Based on the court's ruling, law enforcement officers would need only a search warrant to gain access to e-mail before it reaches its recipient, instead of a wiretap order, which can be far harder to obtain.

The decision, Lipez said, "would undo decades of practice and precedent regarding the scope of the Wiretap Act and would essentially render the Act irrelevant to the protection of wire and electronic privacy."

In other legal cases, courts have treated temporary storage of electronic material differently. Swire said disputes have arisen over whether Internet service providers are liable when their customers have illegally copied music or other works on their systems, thus temporarily storing them on the ISP's networks. Courts have found no such liability, he said.

A spokeswoman for the U.S. attorney's office in Boston, which prosecuted the case, declined to comment on the decision.

An appeal of the case could put the office at odds with the FBI, which has been pushing Congress and the Federal Communications Commission for greater flexibility to monitor Internet communications.

"This decision makes clear that the law has failed to adapt to the realities of Internet communications and must be updated to protect online privacy," said Kevin Bankston, an attorney for the Electronic Frontier Foundation, a privacy advocacy group.

Ohio State University law professor Peter B. Swire said the ruling means e-mail service providers can intercept messages "with impunity."