The US Patent and Trademark Office has rejected the patent that lies at the heart of a huge infringement judgement against Microsoft taken last August, and upheld in January.

The patent, licensed to Eolas and responsible for a $521 million court judgement against the software giant, is invalid the PTO decided after a much-publicised review of its original approval. However, the finding is not final and Eolas is appealing.

The patent covers technology for embedding interactive elements into Web pages, a common practice on the Internet. In August 2003, a Chicago jury agreed Microsoft had infringed the patent with Internet Explorer and ordered it to pay a huge fine. The company appealed but immediately started redesigning the browser to skirt the patent.

In November, however, the PTO decided to review the patent after Tim Berners-Lee, director of the World Wide Web Consortium, wrote to US Under Secretary of Commerce for Intellectual Property, James Rogan. Lee urged the Patent Office to invalidate the 1998 patent due to the existence of "prior art" - namely, previous examples of the technology's use.

The patent office has conducted only 151 such re-examinations since 1988, despite having issued nearly four million patents in that time, said Microsoft spokesman Jim Desler, who called the decision "welcome", but "not surprising".

The patent office's decision may be good news for Microsoft, but the finding, called an "Office action", is only the first stage in the lengthy process of re-examining the validity of a patent. Eolas and the actual patent holder, the University of California, now have two months to respond to the patent office, and they will have a number of avenues of appeal, including an appeal in the courts, if their claim is ultimately rejected.

The University of California has said it will appeal the decision and remains confident of the validity of its patent.

In his finding, the patent office examiner referred to a "seminal" paper and a number of extensions to the HTML (Hypertext Markup Language) "embed" tag that suggest that the university's technology may have been previously implemented and is, therefore, not patentable.

The patent office's determination is good news for Internet users, said one industry analyst. "The initial determination, while not final, is an important victory for Microsoft and many other companies," said Joe Wilcox, a senior analyst with Jupiter Research. "If the Eolas patent is permanently invalidated, it will be business as usual for Microsoft, other software vendors, Web sites and anyone regularly using the Internet," he said.