A U.S. Appeals Court has overturned the preliminary injunction against Microsoft Corporation that barred it from forcing hardware manufacturers to bundle Internet Explorer with Windows. Saying that the lower court made "substantial errors" in its ruling against Microsoft, Tuesday's decision called the bundling of Windows and IE a legal "integrated product" which does not violate Microsoft's earlier agreement with the government. In 1995, Microsoft signed a consent decree that, among other things, allowed it to integrate new technologies into Windows.

"We think this decision from the Appeals Court essentially validates Microsoft's legal strategy," said William Neukom, Microsoft's head legal counsel. "This is a validation of the company's rights to do what it has been doing."

The Appellate Court also declared that Microsoft is allowed to sell "any genuine technological integration, regardless of whether elements of the integrated package are marketed separately. On the facts before us, Microsoft has clearly met the burden of ascribing facially plausible benefits to its integrated design as compared to an operating system combined with a stand-alone browser such as Netscape Navigator," the court's decision read.

In a further blow to the Department of Justice, which sought and won the temporary injunction late last year, the Appellate Court said the DOJ's request for the injunction was improperly written.

"The request for a permanent injunction amounted to no more than a request for a clarification, and thus would require only a showing that the Department's reading of the consent decree was correct," the Court said. "A finding of probable violation of the consent decree could not support a presumption of irreparable harm even under the most extravagant version of the doctrine the government invokes."

Of course, Microsoft isn't out of the doghouse yet: The DOJ's wider anti-trust suit goes to trial on September 8th