Microsoft has settled its two-year legal battle with software company Burst over allegations that the Redmond giant stole Burst's software.

Burst claimed that it was in discussions with Microsoft for two years over the video streaming software the small company had developed. The deal fell through, but similar software was used in Windows Media Player 9 which Burst alleged infringed its patents and harmed its competitiveness.

"We spent over a decade developing and patenting Burst technology in anticipation of the markets that are now emerging," said Richard Lang, Burst's chief executive.

"With this action behind us, the company will now focus on its other important opportunities. We would like to thank the many supporters and contributors who helped us make it to this exciting juncture."

The $60m settlement grants Microsoft a non-exclusive licence to use Burst's software, but does not include sub-licensing rights. Burst says it will use the money to pay staff salaries and bonuses, write off the company's debts and give a bonus to shareholders.

Tom Burt, corporate vice president and deputy general counsel at Microsoft, said: "While we were confident of prevailing in this lawsuit, we have been open from the beginning to finding a reasonable way to resolve this case.

"Securing a licence to the Burst patent portfolio through this settlement allows us to focus on the continued development and deployment of Windows Media technologies to deliver the ultimate media experience to our partners and customers."

Microsoft has been making a concerted effort to settle outstanding corporate litigation and clean up its image. In November it settled a long running dispute with Novell, and in April paid $1.6bn to Sun Microsystems. The company has also spent $200m settling class action suits from US states.