Microsoft has settled the trademark infringement suit that it filed against Linux desktop start-up Lindows.com in December of 2001, the suit that Lindows cleverly managed to stand on its head and turn into an action challenging the legitimacy of the Windows trademark that Microsoft won from the Patent and Trademark Office years ago under cloudy, if not dicey, circumstances.

Microsoft is paying Lindows $20 million to buy the Lindows.com name, although Lindows pretty much stopped using it a few weeks ago except in limited circumstances after Microsoft's lawyers basically got it kicked out of the Benelux. Instead Lindows changed its name and the name of its Linux operating system to Linspire.

So now Lindows or rather Linspire is going to use Microsoft's own money to advance its position on the desktop.

Lindows told the SEC this morning in an amendment to its IPO filing that it needs the money from Microsoft or the IPO to stay in business otherwise it'll be eaten alive by its historical losses and negative cash flow.

As part of the deal, which was signed last Friday, Microsoft has also granted Lindows a limited four-year royalty-free license to some of its Windows Media software, which Lindows will distribute with the Linspire OS.

In the meantime, Lindows is going to stop distributing the five Windows Media files that are bundled with Linspire 4.5, a measure that is supposed to go into effect by October 14. Microsoft has promised not sue Lindows for poaching those files.

Although Microsoft had some success in pressing its trademark infringement case against Lindows in various court in Europe, the federal court hearing the suit in the US had a distinctly bad taste in its mouth about the Windows trademark. It said it found that "There are serious questions regarding whether Windows is a non- generic name and thus eligible for the protection of federal trademark law."

Microsoft also failed to get the US Court of Appeals to hear a rare interlocutory appeal made before the district court case had a chance to start and declare the Windows trademark valid.

The district court trial, after a couple of delays, was finally supposed to start this half.

Obviously Microsoft couldn't run the risk losing the Windows name and settled out-of-court, basically an admitting that Lindows had it over a barrel.

Microsoft is supposed to send Lindows a check for $15 million by August 15 and another one for $5 million by February 1 in exchange for the domains: lindows,org, lindowsinc,net, lindowsinc.org, lindowsos.com, lindos.com, lindoors.com, lindowsemail.com, lindowsfam.com. lin----s.com, lin---s.com. lin-s.com, lin-s.com and lindash.com.

The agreement says Lindows has got to get all Lindows references out of its operating system by September 14 and inform distributors to stop using the Lindows name by then too.

The insipid press release the pair put out this afternoon speaks to none of the angst that the situation engendered.

There was a canned quote from Microsoft's deputy general counsel Tom Burt saying, "This case was centered on the fundamentals of international trademark law and our necessary efforts to protect the Windows trademark against infringement. This settlement addresses those concerns, and we are pleased that Lindows will now compete in the marketplace with a name distinctly its own."

Yeah, right, Tom.

Lindows CEO Michael Robertson, obviously restrained from chortling, was quoted as saying, "We are pleased to resolve this litigation on terms that make business sense for all parties."

In the settlement, Lindows throws Microsoft a bone and acknowledges the validity of the Windows trademark.