The U.S. Court of Appeals for the Federal Circuit threw out late Friday a lower court's decision that E-Data's patent did not entitle the company to charge fees to the thousands of sites that sell downloads of video games, music and other products online.
The federal court held that the trial judge erred in its decision by interpreting the patent too narrowly.
But in a move that severely limits the patent's reach, the appeals court upheld the trial judge's March 1999 decision that the patent does not cover downloads to PC hard drives.
That means E-Data can only press for the right to collect fees for materials downloaded to compact discs, paper, kiosks and other appliances.
"This method of distribution of music and other products is anticipated to be a large and fast-growing market in the near future," E-Data president Scott Hillstrom said in a statement. "We are optimistic that we will reach a large percentage of it with the clear path we can see ahead based on this ruling."
E-Data maintained in a 1996 lawsuit against dozens of companies that its patent, known as the "Freeny patent," covered many systems of downloading software.
The case had at one time been closely watched because, had the courts agreed with E-Data's interpretation of the patent laws, tens of thousands of sites might have owed the company royalties for software downloads.
"This case has a long way to go yet," said attorney Daniel R. Harris, a patent expert and a partner at Brobeck Phleger and Harrison. "All the (federal court) did was look at the language of the (lower court's) finding and decide it was too narrow. They still have to figure out if the patent is valid and whether or not the defendants infringed on the patent."