Microsoft will comply with the injunction by stripping an XML feature from the word processing application that's been the subject of a patent infringement lawsuit filed by Canadian company i4i, the company said.
"We are moving quickly to comply with the injunction, which takes effect on January 11, 2010," said Kevin Kutz, the director of public affairs for Microsoft.
The decision by the Court of Appeals for the Federal Circuit follows a late-September hearing before a panel of three judges, during which Microsoft argued that a jury verdict earlier this year should be overturned or a retrial should be ordered.
It also asked that an injunction ordered by US District Court Judge Leonard Davis be struck.
The case has attracted interest primarily because of that injunction, which originally was to bar Microsoft from selling Word as of October 10, 2009.
That injunction, however, was suspended after Microsoft threatened that sales chaos would result, and several major computer makers, including HP and Dell, stepped forward to say the same.
According to Microsoft, it would take five months to modify Word, and the company wouldn't be able to sell Word 2007, and the Office 2007 suite that includes the word processor, during that time.
The appeals court agreed with Microsoft on the five-month delay.
"We conclude that the district court erred by ordering Microsoft to comply with the injunction within sixty days," the Court of Appeals' order read.
Instead, said the judges, the only evidence entered into the record was Microsoft's five-month timetable, which the January 11, 2010, deadline allows.
Canadian developer i4i first sued Microsoft in 2007, accusing the US company of illegally using its XML editing technology in the popular Word software line.
In May, a Texas jury said Microsoft violated i4i's patent, and ordered it to pay i4i nearly $300m in damages. The judge issued his injunction on August 11.
Today, Microsoft said it had been planning on this contingency.
"With respect to Microsoft Word 2007 and Microsoft Office 2007, we have been preparing for this possibility since the District Court issued its injunction in August 2009 and have put the wheels in motion to remove this little-used feature from these products," Kutz said.
"Therefore, we expect to have copies of Microsoft Word 2007 and Office 2007, with this feature removed, available for US sale and distribution by the injunction date."
Microsoft is not obligated to modify already-purchased copies of Word via a software update, but only to strip the i4i technology from the programs it sells as of January 11, 2010.
Currently, the only versions that Microsoft sells to distributors are Word 2007 and Office 2007.
The upcoming Word 2010 and Office 2010 - which were released as previews a month ago - do not require any changes, Kutz added.
"The beta versions of Microsoft Word 2010 and Microsoft Office 2010, which are available now for downloading, do not contain the technology covered by the injunction," he said.
Microsoft is considering additional legal moves, said Kutz, including requesting a rehearing by the Court of Appeals, or asking the US Supreme Court to hear the case.
The Court of Appeals today also reaffirmed the jury verdict in the case, and said that Microsoft was obligated to pay i4i nearly $300m in damages and interest.
Representatives from i4i did not reply to a request for comment on today's appeals court ruling.