Microsoft is to pay $20 million for the rights to the “Lindows” name, following a lawsuit for trademark infringement.

Microsoft Corp., the world’s largest software maker, will pay $20 million to Lindows Inc. to settle a dispute over the use of the company’s name, which Microsoft said was too similar to its Windows trademark.

Microsoft will gain rights to Lindows.com and other Internet domain names, and Lindows will change its name to Linspire, Lindows said in a filing with the U.S. Securities and Exchange Commission. Microsoft had sued Lindows in December 2001, alleging that use of “Lindows” violated its Windows trademark.

The case raised the possibility that Redmond, Washington- based Microsoft could lose rights to the Windows trademark. A U.S. judge had questioned the validity of the trademark and said a determination could be based on how the term Windows was used 20 years ago, a tough standard for Microsoft to prove.

“It was a risk for Microsoft,” said Louis Solomon, a trademark attorney not associated with the case. “There are times when you commence litigation and subsequent discovery leads you to the conclusion that its in your best interest to make a one-time payment.”

As part of the settlement, San Diego-based Lindows acknowledged the validity of the trademark and Microsoft’s ownership of it. Lindows will change its name to Linspire by Sept. 14 and stop using the Lindows name, including the Internet domains, according to the filing.
Lindows Chief Executive Michael Robertson said the accord makes “business sense” for both companies.

“Over the next few months Lindows will cease using the term Lindows and transition to Linspire globally as our company name and primary identifier for our operating system product,” Robertson said in a joint statement with Microsoft.

In May, Microsoft sued Lindows over unauthorized use of its Windows Media files. The settlement gives Lindows a four-year royalty-free license to use the media files with its operating system.

Lindows develops and sells Linux-based operating systems and software for personal computers. The company plans a public share offer and will trade on the Nasdaq under the symbol LINE. A date hasn’t been set for the sale.

Microsoft will pay Lindows $15 million by Aug. 15 and an additional $5 million by Feb. 1.

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