The US Court of Appeal's quashing of antitrust penalties imposed on Microsoft has prompted a defiant response from the software giant's industry rivals.

The appeals court last week rejected the ruling that Microsoft should be split into two separate businesses, in order to curb its monopolistic practices.

A Sun Microsystems official said: "Two levels of the Federal Court system have found that Microsoft is a monopolist, and has abused its monopoly power in very significant ways. Moreover, the courts agree that Microsoft's acts broke United States antitrust law.

"As the case is turned over to the District Court, we hope that the court will act decisively to ensure that Microsoft's illegal activity - and the harm that it has done to the industry and to consumers - is brought to an end forcefully and permanently."

Microsoft rival Red Hat, which distributes a version of the Linux operating system, called the ruling a victory for open source, pointing in particular to the fact that Microsoft remains branded a monopoly.

James Neiser, chief marketing officer at Red Hat, said: "A lot of people are focused on the reversal of the break-up order, but the key element of the ruling was that it confirmed that Microsoft had been engaging in monopolistic activities."

Microsoft faces continued scrutiny as to how it proceeds with product development, Neiser added: "The ruling reminds potential customers that Microsoft acted illegally to maintain its monopoly, which may encourage them to seek out more flexible platforms from other vendors."

Others industry rivals, including Oracle and AOL TimeWarner, declined to comment.

The Computer & Communications Industry Association (CCIA), whose members include Microsoft rivals Oracle, Sun and AOL, as well as Yahoo and Nokia, also maintained that upholding the monopoly charge against Microsoft was the key point in the ruling. The CCIA went so far as to say that the court's decision could help preserve the "new economy", because it helped show that "lawless anti-competitive behaviour" would not pay-off in the technology sector, according to a statement.

The Association for Competitive Technology (ACT), which has backed Microsoft in the case, applauded the ruling, saying it supports its belief that "preserving the right of a company to add features to their products is the central issue in this case". By permitting companies like Microsoft to bundle features with existing software, consumers are able to receive more value from a single product, rather than having to piece applications together themselves, ACT said.

The group cautioned the District Court to consider carefully what remedies it applies to curb Microsoft's behaviour. Entrepreneurship could be damaged by an industry wrapped up in legal and political infighting, ACT said.