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, alleging six patent infringements relating to its PCs.
The legal battle quickly escalated.claiming HP violated five of its patents. Then the parties took their legal battle on a global scale, 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.