SEATTLE - A U.S. court of appeals on Friday overturned a $358 million damages award against software maker Microsoft Corp in a long-running patent dispute with French telecoms equipment firm Alcatel-Lucent.

The United States Court of Appeals for the Federal Circuit, which handles many patent and trademark cases, held that Microsoft did indirectly infringe Alcatel's patents, but said the damages awarded against the firm were not justified and must be retried.

Last year, a U.S. federal court jury awarded Alcatel-Lucent $358 million in damages from Microsoft for violating patents relating to technology that allows users to enter dates into calendars in its Outlook e-mail program, known as the Day patent.

Because the damages award based on the infringing date-picker feature of Outlook is not supported by substantial evidence and is contrary to the clear weight of the evidence, the damages award must be vacated, the court said in its ruling.

Both companies took some encouragement from the court's action.

We are pleased that the court vacated the damages award, and we look forward to taking the next step in the judicial process, said Microsoft spokesman Kevin Kutz.

While we are disappointed that the Court did not affirm the jury's decision on damages, we look forward to an upcoming proceeding to determine the compensation to which Alcatel-Lucent is entitled based on the Court's finding that Microsoft did use our patented invention, an Alcatel-Lucent spokeswoman said.

The Day patent dispute is the last part of a large, long-running, multibillion dollar patent dispute between Alcatel-Lucent and Microsoft. The remainder of the litigation was resolved last December.

Microsoft shares were down 5 cents at $24.95 on Nasdaq, while Alcatel-Lucent shares rose 4.9 percent to 2.758 euros in Paris.

(Reporting by Bill Rigby and Jonathan Stempel; Editing by Phil Berlowitz)