An appeals court has reversed the $520 million judgement against Microsoft in the Eolas patent infringement case, but found that infringement did occur and ordered a retrial.

The court said in its decision [pdf] that it agreed with the lower court that Microsoft had infringed Eolas browser patent but that it had "improper granted judgement as a matter of law" and "improperly rejected Microsoft's inequitable conduct defence". In other words: right result, wrong approach.

Inevitably, both sides have claimed victory. "Today’s appeals court decision overturning and remanding the district court verdict in the Eolas patent case is a clear victory not only for Microsoft, but for Internet users as well," Microsoft said in a statement. "We have maintained throughout this process that the Eolas patent is not valid and today’s ruling is a clear affirmation of our position."

The University of California, part owner of the patent, sees things differently. "We regard it as a victory," said Trey Davis, director of special projects and new media for the university. "We prevailed on issues that were most critical to Microsoft's argument, namely on the question of damages and patent infringement."

The actual patent itself covers interactive content embedded in a website, a common practice on the Internet. Eolas sued Microsoft in 1999 and the university later joined the suit.

In August 2003, a jury decided against Microsoft and ordered the company to pay $520.6 million in damages. District court judge James Zagel upheld that verdict in January 2004.

But that second ruling triggered an outcry from experts, who argued that the patent should be invalid because of prior art, or examples of the technology's use before the patent was issued. Tim Berners-Lee, urged the US government to invalidate the patent.

Microsoft appealed and the case was heard in December. Yesterday, the appeals court reversed the lower court's decision against Microsoft and ordered a new trial.

And so the whole process begins again.