That preliminary injunction - issued by U.S. District Court Judge Thomas Penfield Jackson - required Microsoft to unbundle its Internet Explorer browser from the Windows operating system. Last week, Microsoft filed a motion asking the appeals court to exclude Windows 98 from the ruling.
The decision has no effect on potential court challenges to the pending shipment of Windows 98 being considered by state attorneys general and the U.S. Department of Justice.
The injunction stemmed from a DOJ suit filed last October, accusing Microsoft of violating a 1995 consent decree prohibiting it from tying other products to Windows. In that suit, the DOJ said Microsoft was illegally forcing computer makers who install Windows on their machines to also include IE.
In Tuesday's ruling the court said the DOJ 's arguments that the injunction should also apply to Windows 98 were "very weak".
"So far as we know it, it presented no evidence at all about Windows 98," the U.S. Court of Appeals wrote in the decision. The court also said that prohibiting the shipment of Windows 98 would put "judges and juries in the unwelcome position of designing computers".
Microsoft praised the decision, saying it paved the way for the company to move ahead with Windows 98, which integrates Internet technology more fully than any Microsoft product so far and is set to ship to computers makers this week and to consumers on June 25.
"This means we can get to customers a fully featured, fully integrated version of Windows," Microsoft spokesman Adam Sohn said. "It's what we've been saying all along."
But the Department of Justice downplayed the decision. "It's a narrow ruling on the consent decree. Our investigation is still ongoing," a DOJ spokesman said.
Indeed, Microsoft is still under the legal gun. Tuesday's decision could have little meaning if the DOJ and state attorneys general file broader antitrust action, as they are expected to do in the coming days.
In effect, Tuesday's ruling indicates trustbusters may have to pursue other avenues if they want to rein-in Windows 98 in any meaningful way.
Meanwhile, both sides are awaiting the court's decision on other matters, including the fate of a special master and full reversal of the injunction. Microsoft has asked the court to dismiss a special master assigned by the Judge Thomas Penfield Jackson and to overturn the injunction ruling.