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A federal appeals court ruled that handheld computer maker Palm Inc. has the right to challenge a patent owned by Xerox Corp. for handwriting recognition software used in tens of millions of Palm handheld electronic organizers. The U.S. Court of Appeals for the Federal Circuit on Thursday upheld a ruling by a federal judge in Rochester, N.Y., that Palm infringed on Xerox’s patent. However, the court granted Palm a partial reprieve by giving it another chance to show the patent is invalid. “This ruling recognizes the strength of Palm’s arguments with respect to the fundamental question of validity,” said the Milpitas, Calif.-based company’s chief executive, Eric Benhamou. In December 2001, U.S. District Judge Michael Telesca ruled that Palm’s handheld organizers, which use handwriting technology marketed as “Graffiti,” infringe on patents held by Xerox. Two months later, the judge ordered Palm and its former parent, 3Com Corp., to post a $50 million bond to cover the potential damage that may occur during the appeal period. Palm has been able to continue selling devices with the software while the dispute is under way. The Federal Circuit asked the lower court to do more analysis to determine the validity of the patent. The infringement was based on a broad construction of the patent, which “has implications for the issue of validity,” the court said. “In our view, sending the case back to the district court simply delays the inevitable,” said Barry Kesselman, a patent attorney for Xerox. The Stamford, Conn.-based office equipment company had successfully argued that its scientists invented the “Unistroke” software that recognizes one-stroke motions as characters. It wants Palm and its former parent, 3Com Corp., to pay a windfall in license fees. Xerox said that if the district court finds the patent is valid, Palm will have to stop selling devices with the handwriting recognition software in dispute. In trading on the New York Stock Exchange, Xerox shares fell 4 cents to close Friday at $8.90, while Palm shares rose 1 cent to $13.59 on the Nasdaq Stock Market. Copyright 2003 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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