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Microsoft is reportedly pushing a patch through Windows Update to reduce disputed functionality in its widely used Word word-processor application.

The patch release comes two weeks after a U.S. appeals court judge upheld a $290 million patent infringement judgment to Canada-based software firm i4i Ltd. The lower-court ruling found that advanced XML functions in Word versions 2003 and 2007 violated i4i’s patent. The courts ruled that Microsoft could not sell versions of Word that included the disputed XML functions.

The patch, reportedly due out in early January, will remove Word’s ability to handle custom XML elements in supported files. Microsoft has made a Microsoft Office Supplemental Release, a tool for reducing Word functionality, to partners and computer manufacturers since October 2009.

While the ruling was damning to Microsoft in that it would prevent the sale of its popular Word and Office productivity suite, the ruling was stayed through the appeals process, allowing Microsoft to continue selling and distributing Word.

Analysts and legal observers expected Microsoft and i4i would settle the dispute – perhaps through a cash settlement and ongoing royalty payments. However, the appeals court ruling means Microsoft must remove the disputed functions to continue Word sales.

The good news is that the disputed custom XML handling in Word is only used by a fraction of the user base. Analysts say the majority of business and consumer users won’t noticed the diminished XML functionality.