Eolas disclosed the settlement in a letter to its shareholders, a copy of which has been posted on the Seattle Post-Intelligencer website. The letter states that the two firms reached an agreement on 24 August.
Microsoft has confirmed the settlement in a statement to vnunet.com. Details were not disclosed, but Eolas said that it will provide additional information at a shareholder meeting on 4 September.
The firm also promised that the settlement will result in the payment of a dividend of $60 to $72 per share.
The disputed patent is owned by the University of California which has an exclusive licensing agreement with Eolas. The university is set to receive a part of the settlement.
Eolas filed a legal complaint against Microsoft in 1999, alleging that the software giant infringed on one of its patents.
The disputed technology covers a way to embed interactive components into a web page, such as the way that YouTube videos can be embedded into a blog.
Microsoft has since changed the way that Internet Explorer embeds Active-X elements. Users are now required to activate interactive items by clicking on them where previously such items would function automatically.
The company had argued that the patent should be invalidated due to prior art, a legal term indicating that somebody else invented the technology before Eolas.
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