The US Court for the Western District of Texas found that Canon had violated an agreement with Nano-Proprietary by signing a production deal with Toshiba.
Canon's deal to license Nano-Proprietary's carbon nanotubes was signed back in 1999, but the Texas-based company said that Canon's 2004 partnership with Toshiba broke that contract.
Judge Samuel Sparks awarded the case in Nano-Proprietary's favour and gave the company the right to dissolve the licence agreement.
Canon had previously tried to put the matter to rest by buying Toshiba out of its share of the partnership. However, the judge ruled that this action had not taken place quickly enough.
"Canon's recent restructuring of SEDs [surface-conduction electron-emitter displays] as a wholly owned subsidiary is ineffective to prevent termination," he said.
"This effort to cure the breach was not undertaken within a reasonable time as it occurred more than a year and a half after Canon was on notice of its breach."
The SED technology uses tiny particles to bombard a screen with electrons to create images. This gives the SEDs a sharper resolution than traditional LCD or plasma models, but allows them to be much thinner than traditional CRTs.
Canon had hoped to fully demonstrate the technology at this year's Consumer Electronics Show, with products being released during 2007.
However, barring an overturning of the decision at appeal, Canon will need to sign a new deal with Nano-Proprietary before any products can come to market.
Damages in the case are still to be decided.
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