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Microsoft Corp. and Lindows Inc. have reached a $20 million settlement in their ongoing trademark feud, with Lindows agreeing to changes its name globally and Microsoft licensing digital media technology.

The settlement, reached on Friday, ends a series of trademark infringement lawsuits that Microsoft had brought against Lindows in which it alleged that the Lindows name was too similar to Microsoft’s Windows trademark.

The two companies announced on Monday that Lindows will change its company name and the name of its Linux-based operating system to Linspire. Lindows previously had changed the name of its OS internationally following initial court rulings against it in the Benelux and other European countries.

Benelux courts more recently ruled that Lindows could sell its products there. Click here to read more.

The companies said that the terms of the settlement were confidential, but a Lindows filing with the Securities and Exchange Commission stated that Microsoft will make two payments to Lindows totaling $20 million.

Lindows previously had filed the paperwork for an initial public offering, and on Monday filed an amended S-1 filing. It intends to issue 4.4 million shares at between $9 and $11 a share, which could raise as much as $48.4 million.

Microsoft agreed to pay $15 million by Aug. 15, and then make a second payment for $5 million by Feb. 1, 2005, in exchange for Lindows handing over a set of “Lindows” domain names to Microsoft, according to the filing.

Microsoft also agreed to grant Lindows a limited, four-year license to unspecified Windows Media components, which Lindows intends to include in its newly renamed Linspire operating system, the filing stated.

Microsoft officials, in a statement, said that the settlement addresses the Redmond Wash., company’s concerns about its Windows trademark.

“We are pleased that Lindows will now compete in the marketplace with a name distinctly its own,” said Tom Burt, Microsoft’s corporate vice president and deputy general counsel, in a statement.

While having some luck against Lindows in Europe, Microsoft faced snags in the United States. In February, a federal court ruled that a jury would consider historical uses of “windows” in user interfaces beyond its use in Microsoft’s operating system.

Next Page: Lindows’ CEO comments on the settlement.

Lindows CEO Michael Robertson, long a harsh critic of Microsoft and its legal challenges to Lindows, took a more conciliatory tone as part of the joint announcement. He said, in a statement, that Lindows will transition to the Linspire name “over the next few months.” The SEC filing set the deadline at Sept. 14.

“We are pleased to resolve this litigation on terms that make business sense for all parties,” Robertson said in the statement.

Both companies are ending their legal actions, and Microsoft agreed not to not file new trademark cases outside the United States without giving Lindows a 30-day notice and opportunity to respond to trademark allegations, the SEC filing stated.

“It was a wise thing [to settle],” said Michael Painter, a senior partner at the Beverly Hills, Calif.-based law firm of Isaacson, Kaufman and Painter who has had experience working on trademark and copyright cases, some of them opposite Microsoft.

“They can money you to death,” Painter said. “If you can get any terms that are slightly favorable, you’ve done a good job.”

Of trademark issues, Painter said, “It’s not rocket science.” The question, he said, is whether a reasonable consumer would get confused when looking to purchase a specific product.

Though Painter did not think this situation was likely in the Lindows example, he said he did think the Windows name was entitled to protection from possible dilution under trademark law. Marks become protected against the threat of being considered generic, he said, by actively distinguishing themselves.

Even though Windows powers a majority of personal computers, he said, it’s not reasonable to say that the word “windows” is used to describe all operating systems.

Editor’s Note: This story was updated to include legal commentary from Michael Painter, reported by Daniel Drew Turner.

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