Computer Associates

(CA) - Get Report

on Tuesday announced it would pay a $40 million settlement to a company that claimed breach of contract over a $15 million partnering agreement it made with the large software firm.

In a press release issued after the bell, Islandia, N.Y.-based Computer Associates said it has reached a settlement with the Canopy Group and Center 7 over a suit filed by the companies in April 2001 in federal court in Utah. Center 7 claimed that Computer Associates reneged on a deal to help sell $15 million in software the small company had bought.

Center 7 was formed by the Canopy Group, which has ties with companies experienced at suing the monsters of software. Canopy has a major stake in

SCO Group

(SCOX)

, which in a suit filed in March charged

IBM

(IBM) - Get Report

with infringing on its Unix copyright in its Linux business. Caldera, the predecessor to the SCO Group, was paid $250 million in 2000 by

Microsoft

TST Recommends

(MSFT) - Get Report

to settle an antitrust lawsuit, according to wire reports.

The Computer Associates settlement, expected to be approved by the court in the current quarter, will cost CA about $40 million, or 2 to 3 cents a share. As part of the settlement, no other terms will be disclosed.

Based on a series of written agreements involving the licensing of certain software products, The Canopy Group and Center 7 were seeking monetary damages for claims of breach of contract and breach of the implied covenant of good faith and fair dealing, among other things, according to CA's latest 10-Q with the

Securities and Exchange Commission

.

In that July 23 filing, CA said it has been defending the case vigorously and its resolution was not expected to have a material adverse effect on the financial position of the company. But CA did warn that in the event of an unfavorable resolution, earnings and cash flow could be affected.

Analysts polled by Thomson First Call were forecasting CA would post earnings of 14 cents a share on revenue of $821.4 million in the current quarter ending in September, which is the company's fiscal second quarter.

The CA case is far smaller than the high-stakes Linux case, in which SCO is seeking billions of dollars of licensing fees. The Canopy Group, which is majority-owned by former Novell chief Ray Noorda, owns in excess of 40% of SCO Group's stock, according to a recent SEC filing.

However, the outcome of the Linux case is far from certain. Last week

Big Blue fired back with a countersuit, charging SCO Group with infringing on at least four patents.

Shares of Computer Associates rose 21 cents, or 0.9%, to close Tuesday at $24.67.