Xerox's long-standing patent infringement suit over Palm Inc and 3Com 's use of its handwriting-recognition technology reached a milestone yesterday, when a US District Court ruled Xerox's patent was "valid and enforceable" and that the two companies had infringed it.

The ruling ends the liability portion of the case, clearing the way for Xerox to seek damages in the next phase, Xerox said in a statement. The trial court will now determine the amount of damages to which Xerox is entitled, as well as ruling on Palm's ability to continue to use the technology.

Palm will have to either cease production of its handheld devices or license the technology from Xerox, Christina Clayton, Xerox general counsel, said.

If the court finds that Palm Inc and 3Com, which are both separately liable, wilfully infringed the patent, the court can triple the amount of damages due to Xerox, the company said.

The lawsuit was originally filed against US Robotics in 1997. Subsequently, 3Com acquired US Robotics, then spun-off its Palm division as Palm Inc. The suit looked set to end last year when a US district court judge for the Western District of New York dismissed it.

The judge's grounds were that Palm's Graffiti handwriting-recognition software - a part of the Palm OS that runs on handheld devices - does not use the same recognition patterns as Xerox's technology.

Two months ago, however, an appeals court threw out the judge's ruling, saying the judge had not understood the technology used in Graffiti.

Palm announced it would appeal the decision. Eric Benhamou, Palm's chairman and chief executive officer, said: "We assert that the Graffiti handwriting technology does not infringe the Xerox patent and that Palm has strong arguments to support its defence.

"Palm will defend itself vigorously and does not intend for this litigation to affect its business strategy or business model nor that of its licensees."

Palm announced losses earlier this week for the period for the three months from September. The company returned losses of $25.2 million for the quarter.