"We assert that the Graffiti handwriting technology does not infringe the Xerox patent and that Palm has strong arguments to support its defense," said Eric Benhamou, chairman and chief executive officer of Palm. "Palm will defend itself vigorously and does not intend for this litigation to affect its business strategy or business model nor that of its licenses."

Judge Michael Telesca, of the U.S. District Court for the Western District of New York, ruled in Xerox's favor Thursday, and judged both Palm and 3Com Corp. jointly and separately liable in the infringement. Xerox filed the lawsuit in 1997, claiming that Graffiti infringed on its Unistrokes patent, which, like Graffiti, translates shorthand drawn by the user into readable text.

The judge's ruling Thursday marks the latest twist in a case in which both sides have appeared to hold the upper hand at various points in its course. In April 1997, Xerox sued U.S. Robotics, later acquired by 3Com, claiming that the handwriting recognition technology marketed as Graffiti and used in Palm handheld devices infringed a Xerox patent received on Jan. 21, 1997. Stamford, Conn.-based Xerox says the technology was invented at its Palo Alto Research Center (PARC) back in 1993.

Xerox's case appeared to be quashed in June 2000 when a federal judge in Rochester, N.Y. dismissed the suit; the judge said the software as it appeared on Palm's PDAs did not use the same recognition patterns as Xerox's software did.

But Xerox won an appeal in October paving the way for this week's trial.

The trial will now move to the damages phase. The court is expected to determine the amount of damages for past infringement of the patent and Palm's ability to continue to use the technology. If the infringement was willful, the court can triple the amount of damages due to Xerox.

-- Michael Singer contributed to this article.