A federal appeals court denied on Thursday Microsoft Corp's request that a full panel of judges rehear arguments in its long-running patent dispute with a small Canadian technology company.

The decision is a blow to the world's largest software maker, which has been embroiled in a dispute with Toronto-based i4i Ltd over a feature in Microsoft's Word application for more than three years.

Microsoft could yet take the case to the U.S. Supreme Court, or make a new request to the appeals court. The company is considering its options, according to a spokesman.

A federal jury awarded i4i $290 million last August after finding that Microsoft had infringed a patent belonging to i4i relating to text manipulation software in the 2003 and 2007 versions of Word, Microsoft's word processing application.

At the same time , the court granted i4i's motion for an injunction preventing Microsoft from selling versions of Word containing the disputed technology. Microsoft has since removed the contested features from its current software.

Microsoft appealed the jury award, but in December a panel of three appeals court judges rejected its arguments.

In January, Microsoft asked for a rehearing by all 11 judges of the United States Court of Appeals for the Federal Circuit. That court, which handles many patent and trademark cases, rejected that request on Thursday.

This has been a long and arduous process, but this decision is a powerful reinforcement of the message that smaller enterprises and inventors who own intellectual property can and will be protected, said Loudon Owen, chairman of i4i, in a statement.

We're disappointed with the decision, a Microsoft spokesman said. We continue to believe there are important matters of patent law that still need to be properly addressed, and we are considering our options for going forward.

Microsoft shares were down 1.3 percent to $28.91 on the Nasdaq.

The case is: i4i Limited Partnership and Infrastructures for Information Inc v. Microsoft Corp, an appeal from the U.S. District Court for the Eastern District of Texas in case no. 07-CV-113.

(Reporting by Bill Rigby; Editing by Steve Orlofsky and Gerald E. McCormick)

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