The lawsuit centres on Palm's Graffiti handwriting recognition input technology that is a central to Palm's PDA's.
The US Court of Appeals rejected an appeal by Palm lodged after a lower court ruling in December 2001. That ruling found that a patent held by Xerox regarding input technology was "valid and enforceable" as part of the case, in which Xerox sued Palm and 3Com.
The appeals court also found that the lower court ruling did not sufficiently analyse issues related to whether Xerox's patent is enforceable, Xerox said. That part of the case was returned to Judge Michael Telesca of the US District Court for the Western District of New York in Rochester for further study. Telesca was the judge involved in the December 2001 ruling.
Palm could not immediately be reached for comment on Thursday's decision.
Almost one year ago, Judge Telesca ordered Palm to pay a $50 million bond as insurance in the dispute.
On Thursday Xerox asked the judge to block sales of Palm PDAs. It made the same request a year earlier, when Palm was instructed to pay the bond, but was turned down then because Telesca said that continued sales of PDAs by Palm would not irreparably harm Xerox.
The case dates from April 1997 when Xerox sued US Robotics, which was later acquired by 3Com. Xerox contended that the Graffiti input technology infringed on patents the company held for its Unistrokes handwriting recognition software.