Microsoft has agreed to pay Linux vendor Lindows $20 million to end the two-and-a-half-year legal battle over the Lindows name. Since 2001, Microsoft has argued the name is too close to its Windows trademark, and Lindows has claimed that "windows" is a generic name and cannot be enforced.

But that's argument is now over before it was decided and as part of the settlement, Lindows has agreed to change its legal name to Linspire, and get rid of all Lindows products by 14 September. The Linspire name is already used for most of its products sold outside the US following a European legal defeat in April.

Lindows will hand over to Microsoft several domain names it registered, including lindows.org and lindowsos.com but retain Lindows.com and Lindowsinc.com until 15 July 2008. They will redirect to the Linspire website.

Microsoft is pleased that Lindows will now compete in the market under a name that is distinctly its own, said Tom Burt, Microsoft deputy general counsel. "We are pleased to resolve this litigation on terms that make business sense for all parties,” said Michael Robertson, CEO of Lindows.

Microsoft has fought Lindows aggressively since it first sued the company in the US in December 2001. That lawsuit suit was followed by legal action in Canada, Finland, Sweden, the Netherlands, France and Spain. The settlement ends all these matters.

While Microsoft has had some success in courts outside the US, 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 pre-trial ruling against the company. As a result, a jury reviewing the US case would have been instructed to consider whether "windows" was a generic term before Microsoft introduced software with that name in 1985. It was a gamble the company wasn't willing to take.

Michael Robertson could help but give Microsoft a poke in the ribs on the Linspire website however. "We want to commercially support Linux, so retailers will have confidence and will stock pre-installed Linux computers to give people an alternative to the expensive, virus-prone alternative," he wrote in a diary piece about the future of the company.

A filing to the US stock exchange 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 $9 to $11 per share and is seeking a listing on Nasdaq.