The USPTO agreed in November to re-examine the Eolas patent and in March issued a preliminary ruling that the patent was indeed invalid. This followed written evidence of prior art being brought to its attention that raised what the Office described as "a substantial new question of patentability" - the legal basis for any form of re-examination.
According to CNET News.com, the USPTO has now issued the second of what is expected to be three actions, rejecting all of the 10 patent claims that were being reviewed.
"Today's action is another step in the Patent Office's reconsideration of the Eolas patent," Microsoft spokesman Jim Desler told CNET. "We've maintained all along that when scrutinised closely, the Eolas patent would be ruled invalid."
Microsoft was sued by the University of California and Eolas Technologies in 1999, when the software giant's Internet Explorer program was accused of infringing a patent for a method that allows web browsers to access interactive application programs.
The patent, issued to the University in 1998, has been licensed exclusively to the tiny Eolas since 1994. But according to Eolas' lawyer Martin Lueck:
"Facing competition from Netscape Navigator in the mid-1990s, Microsoft updated its Explorer browser by using Eolas' technology and subsequently bundled it with all of its Windows operating systems since 1995."
In August 2003 a jury agreed, and awarded damages of $520.6 million plus interest to Eolas.
In January this year a Chicago court upheld the award and banned Microsoft from distributing the infringing software, although it put a stay on the ban pending an appeal.
Microsoft is still in the process of appealing the verdict, but in October it detailed changes it is making to the browser to remove any possible future infringement.
The case has caused a furore among the browser community as, if upheld, the patent seems likely to be of widespread applicability. Such was the concern that the W3C, the international standards-setting body for the internet, stepped in to the dispute at the end of October when its director, Tim Berners-Lee, wrote to the USPTO asking that the patent be declared invalid.
Eolas and the University of California have yet to comment on the latest ruling.