Broadband provider Pipex has suspended an executive in a row over alleged industrial espionage. The company faced legal action by Rackspace, a US-owned web-hosting company.

The suspended executive, 40-year-old Dominic Monkhouse, was managing director of Rackspace until last July when he left to head Pipex 's web-hosting division Web Fusion.

The Sunday Times reported yesterday that Rackspace has sacked a woman who was alleged to have had a relationship with Monkhouse and to have passed information to him.

Rackspace's legal action against Pipex has now been settled, according to both companies. The terms were not revealed.

Pipex said in a statement: "Dominic Monkhouse is in discussions with his former employer… At this time Pipex is not party to the discussions and has no involvement in the issue."

A Pipex spokeswoman said today that the company's involvement in the case had been "tenuous".

But it comes at a delicate time, because Pipex has put itself up for sale in an auction that could shape the future of Wimax wide-area wireless links in the UK. Pipex Wireless, a joint venture with Intel, owns scarce spectrum that can be used for Wimax.

One reported bidder is Virgin Media, the rebranded cable giant NTL Telewest, which could use Wimax to extend its UK broadband coverage.

But a purchase of Pipex would also give Virgin Media a foothold in the lucrative corporate market and it is not certain as this stage whether Pipex Wireless will be included in the deal.