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Microsoft has agreed to pay Linux vendor Lindows $20 million to end a two-and-a-half-year legal battle over the Lindows name, which Microsoft argues is too close to its Windows trademark.

As part of the settlement, Lindows agreed to change its legal name to Linspire by September 14 and cease all use of the Lindows name in its products. The San Diego-based company adopted the Linspire name for its Web site and most of its products sold globally in April after a legal defeat in Europe.

Additionally, Lindows will hand over several Internet domain names it registered, including lindows.org and lindowsos.com. However, the company will be allowed to hold on to the Lindows.com and Lindowsinc.com names until July 15, 2008. The names will redirect to the Linspire Web site.

The settlement was reached on Friday. Lindows disclosed details of the agreement in a regulatory filing with the U.S. Securities and Exchange Commission on Monday.

Microsoft is pleased that Lindows will now compete in the market under a name that is distinctly its own, Tom Burt, Microsoft corporate vice president and deputy general counsel, says in a statement.

Legal Battles

Microsoft has aggressively fought Lindows over the similarity between the Windows and Lindows names. Microsoft first sued Lindows.com in the United States in December 2001. The U.S. suit was followed by legal action in Canada, Finland, Sweden, the Netherlands, France, and Spain. The settlement ends all these matters, according to the Lindows filing.

While Microsoft has had some success in courts outside the United States, it lost two requests for an injunction in a Seattle court. Furthermore, a federal appeals court in May declined Microsoft's request to review a key pretrial ruling against the company. As a result, a jury reviewing the U.S. case would have been instructed to consider whether "windows" was a generic term before Microsoft introduced software with that name in 1985.

The SEC filing also revealed terms for Lindows' planned initial public offering. The company, which has yet to turn a profit, plans to offer 4.4 million shares at a price of $9 to $11 per share and is seeking a listing on the Nasdaq under the symbol "LINE."