Microsoft has lost its second appeal against i4i, the Canadian company that sued them for willfully infringing one of its patents in Word 2003 and 2007. The dispute centers on some custom XML tagging features used by these applications, which are used for encoding and displaying information, and has already cost the software giant a sales injunction plus a potential $290 million in fines.

Back in August the company was ordered to stop selling Microsoft Word -- the cornerstone of its Office suite -- and pay millions in damages. Soon after losing the initial case Microsoft filed an appeal asking the court to re-think its decision. Nevertheless, a panel of judges upheld the initial ruling last December, and having failed to modify its software in time, one month later Microsoft was forced to remove all versions of Office from its online store.

Downloadable copies of Office 2007 are still available, though, so the company might have gotten around removing the infringing code from those versions after all -- Office 2010 also won’t have the offending code and should debut in June.

In any case, yesterday the court re-affirmed the original ruling claiming Microsoft knew i4i had a patent on the technology, but implemented it anyway, making no good faith effort to avoid infringement. The current decision will be passed around to other appeals court judges, who will then decide whether or not Microsoft has grounds for a wider review of the case. If not, then Redmond can go to the US Supreme Court for a final appeal or pay the $290 million award to i4i.