Gateway and HP settle patent dispute

Gateway has agreed to pay Hewlett-Packard $47 million to settle a long-standing patent dispute between the parties, Gateway announced Wednesday.

As part of the settlement, the computer makers also made a seven-year cross-licensing agreement and dropped all legal claims against each other.

The legal wrangling between the companies began in March 2004, when Hewlett-Packard filed a lawsuit against Gateway, alleging six patent infringements relating to its PCs.

The legal battle quickly escalated. Gateway filed a counter lawsuit claiming HP violated five of its patents. Then the parties took their legal battle on a global scale, asking the U.S. International Trade Commission to ban each other from importing computers and components that would violate their respective patents.

Under the settlement, Gateway will pay HP $25 million within seven days of a cross-licensing agreement being executed and will follow with a $22 million payment a year later.

The bulk of the settlement, $30.3 million, will go toward the cross-licensing fee. The remainder will be applied to resolution of allegations that Gateway infringed on HP's patents since 1999.

Gateway, as a result of the settlement, will also revise its 2005 earnings. The company will take a $16.7 million charge, resulting in net income of $32.8 million, compared with its previously reported $49.5 million.