A federal appeals court Thursday said prosecutors cannot force U.S. companies like Microsoft to turn over customer emails and other data stored on servers overseas — a ruling the government suggested could hamper national security investigations.

The three-judge panel of the 2nd U.S. Circuit Court of Appeals unanimously overturned a lower court's contempt finding against Microsoft for not handing over a customer's emails stored in Ireland. Federal prosecutors wanted the material for use in a drug trafficking investigation.

The ruling in the closely watched case was a victory for high-tech companies in the burgeoning "cloud computing" business, in which data is kept not on personal computers but on giant and sometimes distant servers. Microsoft stores data from over 1 billion customers and over 20 million businesses on servers in over 40 countries, the court noted.

The court said prosecutors went beyond what Congress intended when it passed the Stored Communications Act in 1986.