Sendo, a U.K. manufacturer of cell-phone handsets, and Microsoft have settled their lawsuit. Terms of the settlement were not disclosed, except that Microsoft will no longer have a financial stake in Sendo and the settlement contained an official denial of "any and all wrongdoing" by both parties.

The dispute goes back to Feb. 2001, when Microsoft took a 4% stake in Sendo for US$12 million, and Sendo agreed to manufacture a phone for the first version of Microsoft's Windows Mobile-based Smartphone platform. However, the phone was never delivered. Instead, Microsoft turned to Taiwanese handset maker HTC, and Sendo refocused development on the competing Symbian platform.

Shortly after the two companies ended their business relationship in Nov. 2002, Sendo sued Microsoft for conspiracy, fraud, misappropriation of trade secrets, and other claims. Sendo alleged that Microsoft purposely delayed delivery of the Smartphone platform, refused to make promised payments, and made unreasonable demands (such as 300 prototype phones) in an effort to drive Sendo out of business. Under the terms of their contract, Microsoft would have gained Sendo's intellectual property if Sendo went bankrupt.

In a countersuit filed in Feb. 2003, Microsoft called Sendo's charges "fanciful and unfounded" and alleged that Sendo breached the companies' contract by shifting development to Symbian and misleading Microsoft about its progress on the Smartphone project.

The lawsuit was expected to enter the discovery phase by the end of 2004. Although Microsoft has admitted no wrongdoing, the discovery phase nonetheless could have been a public relations minefield, as internal e-mails and strategy documents became public. (A similar situation stung Microsoft in Mar. 2004 during the discovery phase of a class-action suit filed by consumers in the state of Minnesota.) By settling the case now, Microsoft avoids that possibility.