U.S. District Judge Colleen McMahon awarded Prodigy its motion for summary judgment to have the case dismissed, saying that no jury could find that Prodigy infringes BT's patent.

The ruling frees all Internet service providers from the threat of having to pay a license fee to BT for hosting pages that use hyperlinks--the building blocks of the Web. If BT had won and license fees had been imposed, the charges would have almost certainly been passed on to ISP customers.

BT had contacted Prodigy and 16 other ISPs, including America Online, in June 2000, asking them to buy a hyperlink license. When they refused, the British telecommunications giant pursued Prodigy as a test case.

The ruling is a huge blow for BT, which had doggedly pursued the case. Shortly before the case went to trial in February, BT Chairman Sir Christopher Bland dismissed suggestions that BT would be wise to ditch the lawsuit. "The case will go ahead," Bland said at the time. "The idea that we should abandon this suit in order to provide ISPs with a feel-good factor is, frankly, bizarre?Everyone sues all the time in the States, anyway."

BT appeared to be losing the case almost from the start. In March, McMahon decided, in what is known as a Markman ruling, that many of BT's claims were invalid. A Markman ruling constitutes the first phase of patent trials and is concerned primarily with putting the words of the patent claim into plain English.

The hyperlink patent--properly known as the Sargent patent--describes a system in which multiple users, located at remote terminals, can access data stored at a central computer. BT had argued that the Internet infringes the Sargent patent and that Prodigy facilitates infringement by its subscribers by providing them with access to the Internet.

But McMahon found three problems with BT's arguments. First, she said, the Internet has no "central computer" as described in the Sargent patent. Second, she said that because the Internet itself does not infringe the Sargent patent, "Prodigy cannot be liable for contributory infringement or active inducement for providing its users with access to the Internet."

And third, said the judge, BT's argument that Prodigy's Web servers directly infringe the Sargent patent also fails "because Web pages stored on Prodigy's Web servers do not contain 'blocks of information' or 'complete addresses' as claimed in the Sargent patent."

"In contrast to what BT would have us believe," McMahon concluded, "there are no disputed issues of material fact in this case. Instead, the two sides reach vastly different conclusions based on the same set of facts. I find that, as a matter of law, no jury could find that Prodigy infringes the Sargent patent...either as part of the Internet or on its Web server viewed separate from the Internet. Prodigy's motion for summary judgment is therefore granted."

BT filed for the patent in the United States in 1976. The patent, No. 4,873,662, was issued to BT in the United States in 1989 and expires in 2006. The company said it only discovered the patent in a routine trawl through its own patents four years ago.

ZDNet UK's Matt Loney reported from London.