Microsoft has agreed to pay Sun Microsystems $20m to end a bitter three-year battle between the two industry giants over Java.

As part of a settlement announced late yesterday, Microsoft has also accepted Sun's termination of a previous licensing agreement, and has agreed not to use Sun's Java-compatible trademark.

Sun sued Microsoft in October 1997, claiming contractual violation and copyright infringement, after the Redmond giant created a Windows-only version of Sun's Java technology. Microsoft later counter-sued.

Sun claimed that Microsoft broke its promise to deliver applications that support Java when it licensed the technology from Sun in 1996. Sun argued that instead of doing this, Microsoft began distributing incompatible implementations which would only run on Windows.

As part of the settlement, Microsoft is permitted to continue shipping all beta and current products containing Sun's technology for up to seven years.

Scott McNealy, Sun's chairman and chief executive, claimed a significant victory over the company's arch rival. "It's pretty simple: this is a victory for our licensees and consumers. The community wants one Java technology - one brand, one process and one great platform," he said.

Microsoft claimed that the settlement would enable it to concentrate on .Net, which is widely seen as a competitor to Java. Sanjay Parthasarathy, vice president of the software giant's platform strategy group, said: "This settlement is great news for the industry and Microsoft as it means we can focus on all our resources to help enable the next generation of software with web services."