Intel has settled its patent dispute case with Transmeta and will pay $250m (£122m) to the rival chip maker.

Transmeta filed the lawsuit against Intel in October 2006, accusing the chip giant of infringing on 10 patents covering computer architecture and power efficiency technologies.

Transmeta alleged that Intel infringed on its intellectual property in the Pentium III, Pentium 4, Pentium M, Core and Core 2 product lines.

Intel countersued Transmeta in January 2007, accusing the smaller company of infringing seven Intel patents.

The deal agreed today will see Intel pay an initial $150m payment to Transmeta, plus an annual licence fee of $20m over the next five years.

As part of the agreement, both parties have dismissed their pending litigation.

"We are very pleased to have reached this agreement with Intel," said Les Crudele, president and CEO of Transmeta.

"We believe that this arrangement will create value for Transmeta stockholders both by realising immediate financial value for our intellectual property rights and by supporting our technology development and licensing business going forward."

AMD invested $7.5m in Transmeta in July 2007 and the company once employed Linux creator Linus Torvalds.