A US federal court has overturned a ruling which would have forced Microsoft to incorporate Sun Microsystems' Java technology into Windows.
The judgement blocked a ruling made by a lower court judge last December that ordered Microsoft to carry the rival software.
The Java technology enables programs to be run on all types of computers, whether they use Windows, Apple's operating system or any other operating system.
However, the judges did uphold the lower court ruling that Microsoft had broken a 2001 legal settlement between the two firms and had infringed on Sun's copyrights, and returned the case to the lower court for further proceedings
Sun is seeking $1bn in damages from Microsoft, accusing the software giant of trying to block the spread of Java software.
This is another step in a long legal process and we
consider it to be a positive step
Jim Desler, Microsoft spokesman
Last December it sought an urgent injunction to force Microsoft to incorporate Java into its latest version of Windows operating system, XP.
Sun said it could not wait until the court case was over because by then Java could have been killed off.
Judge J Frederick Motz had agreed with Sun, saying that Java could lose out to Microsoft's .NET web service software.
But the appeals court judges said this ruling was legally flawed, and there was not enough evidence to prove Sun would suffer "immediate irreparable harm" without
a preliminary injunction.
In a statement Sun said it was "disappointed" with the decision, but said it remained upbeat about its chances of ultimately winning the case.
"We look forward to a speedy trial and our opportunity to
more fully address these and significant additional violations when we present our complete antitrust case against Microsoft," Sun said.
Microsoft said it was pleased with the ruling.
"This is another step in a long legal process and we
consider it to be a positive step," said spokesman Jim Desler.
On the markets, Microsoft shares closed up 49 cents at $25.75 while Sun Microsystems fell 10 cents to $4.79.