Updated from 3:45 p.m. EDT

A federal appeals court on Thursday said that Microsoft ( MSFT) does not have to incorporate Sun Microsystems' ( SUNW) Java programming language in the Windows operating system.

The ruling was a reversal of an order by a lower court judge who said Microsoft must carry Java because of its previous anticompetitive actions.

However, the three-judge panel sided with Sun on another issue of the lawsuit, ruling that if Microsoft chooses to distribute Java, it must do so in accordance with earlier agreements between the two software companies. Sun claimed that Microsoft had violated those agreements, thus making it harder for Sun to sell Java to major PC companies such as H-P ( HPQ) and Dell ( DELL).

Java is a programming language that developers use to write a program once, while allowing it to run on multiple platforms. Although Java is not well-known to many consumers, it is an important development tool used to write programs for cell phones and other devices, as well as for PCs.

Sun alleges that so-called anticompetitive acts by the giant software vendor gave an unfair advantage to Microsoft's .NET framework, the company's answer to Java and the Sun Open Network Environment. The Santa Clara, California-based company is suing Microsoft for $1 billion in damages, a matter that was not touched on in Thursday's ruling.

Not surprisingly, each side found something good to say about the split decision.

"We are extremely pleased with the Appellate Court's ruling today affirming the copyright infringement injunction. This decision confirms that Microsoft violated our prior settlement agreement, and that it did so in a way that continued to fragment the Java platform on PCs," said Lee Patch, vice president of legal affairs for Sun.

Sun is already planning a marketing campaign that will attempt to raise awareness of Java in the consumer market. It hopes that a higher profile for Java will convince more developers to write Java programs. Sun software czar Jonathan Schwartz said he hopes to boost the number of Java program developers from 3 million globally now to more than 10 million.

Microsoft spokesman Jim Desler said his company was pleased with the "must carry" decision. Microsoft, he said, has already taken steps to address the copyright issue and has stopped distribution of the Java Virtual Machine. "From a practical standpoint, the copyright ruling has no effect," Desler said.

The civil suit will probably not come to trial for another two or three years, Desler said.

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