(Adds Nokia statement in last paragraph.)

By Chad Bray

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- A federal appeals court on Thursday overturned a district judge's preliminary injunction ordering arbitration in a patent dispute between InterDigital Inc. (NMS) and Nokia Corp. (NOK) and barring InterDigital from pursuing a separate action before the International Trade Commission.

In an order Thursday, the 2nd Circuit Court of Appeals said the lower court abused its discretion in granting injunctive relief because Finland's Nokia had waived its right to arbitrate disputes involving its license rights to InterDigital's third-generation mobile handset and component patents.

The appellate court noted Nokia sued InterDigital in Delaware in 2005, moved to stay the Delaware litigation in October pending the ITC action and only requested arbitration in December, when it asked to terminate or stay the ITC action.

"We conclude, therefore, that Nokia has waived its right to arbitrate through its repeated, intentional invocation of judicial process to resolve questions about the scope of the patents at issue and the applicability of the licenses established by the agreement to these patents," the circuit found. "Because Nokia has waived its right to arbitrate these questions, it has failed to show a likelihood of success on the merits of its underlying action to enforce the arbitration agreement."

In March, U.S. District Judge Deborah A. Batts in Manhattan ordered arbitration in the matter and blocked InterDigital, a King of Prussia, Pa., wireless-technology developer, from taking action in the ITC proceeding against Nokia for patent infringement.

The judge at the time ordered InterDigital to either request a stay of the ITC proceeding or to terminate its action if the stay wasn't granted.

In September, the ITC voted to begin an investigation after InterDigital filed a complaint with the commission alleging unfair trade practices and patent infringement by Nokia.

On Thursday, the appellate court ordered the case remanded to the district court for further proceedings.

Earlier this month, Nokia and an InterDigital unit settled two separate patent-infringement cases in the U.K.

A Nokia spokeswoman said the company was reviewing the decision and was considering its next course of action.

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com

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