updated 5/24/2005 6:58:26 PM ET 2005-05-24T22:58:26

Two years and two spinoffs later, the handheld computer company that made its name with the Palm Pilot is changing its name back to Palm Inc.

PalmOne Inc. announced Tuesday that it will get full rights to the Palm brand name — and revert back to its original corporate moniker — later this year.

Under terms of Tuesday’s agreement, PalmOne will pay the software company it spun off in 2003, PalmSource Inc., $30 million over three and a half years for the latter’s 55 percent share of the Palm Trademark Holding Co.

PalmOne, which makes Treo-branded smart phones and Tungsten and Zire handhelds — also granted PalmSource certain rights to Palm trademarks over a four-year transition period. That move will likely force PalmSource to eventually change its name, PalmSource executives.

In another development with potentially major implications for both companies, PalmSource’s new interim chief executive said Tuesday that he plans to move the company toward an open source system, possibly Linux.

PalmOne renewed its license of the Palm operating system in the deal announced Tuesday, saying it would pay PalmSource minimum royalty payments of $148.5 million, subject to meeting certain milestones. Under its terms, PalmOne can continue to develop and market smart phones and other mobile devices based on Palm’s operating system through 2009.

Milpitas-based PalmOne was formed in 2003 when Palm Inc. spun off its software division after acquiring Handspring Inc. Sunnyvale-based PalmSource, the operating system licensing business, was spun off by palmOne later that year. The spinoffs were supposed to help spur licensing deals for PalmSource and give PalmOne more freedom to develop technology without worrying about business conflicts.

But both companies have been struggling in recent quarters as competition heats up from hardware sellers including Dell Inc. and Hewlett-Packard Co. PalmSource also faces major competition from Microsoft-powered handheld devices because of their seamless compatibility with Microsoft’s suite of desktop computing software.

Both companies have also struggled with a raft of senior executive departures.

Earlier this month, PalmOne promoted interim Chief Executive Ed Colligan, 44, to the full-time job. Colligan, one of the founders of Handspring, served as the company’s interim CEO since Todd Bradley’s resignation in January.

PalmSource CEO David Nagel stepped down this weekend, and on Monday the company named Patrick McVeigh, senior vice president of worldwide licensing, as interim chief executive.

McVeigh told The Associated Press on Tuesday that among the changes he plans to make is to move the company toward an open source operating system for the handheld devices.

“I can tell you several major players have already contacted me and what they tell me is this: They want an open alternative — no closed, proprietary systems,” McVeigh said Tuesday at a PalmSource conference in San Jose. “That’s where we’re going. We’ve already talked about the possibility of moving over to Linux.”

McVeigh declined to disclose the names of the “major players.”

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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