Protein Design Labs (NASDAQ:PDLI) shares were up 21% to $16.76 midday on news the company would settle a dispute with Genentech (NYSE:DNA) related to a patent licensing master agreement signed between the two in 1998.

The spat, which flared up in August, concerned Genentech's Xolair asthma treatment launched in July. Back then, Genentech denied that the drug required licensing Protein Design's patents or royalty payments under the agreement, sending Protein Design shares down about 25%.

But as Tom Jacobs wrote here in August:

Given the Agreement's September expiration, this could be more posturing for negotiation purposes. Patent skirmishes are routine where real money is at stake, but they most often lead to the combatants calling a truce, cross-licensing each other's patents with or without some cash, and moving on. Thus the current spat could be relationship jitters.

And that's essentially the way this one played out, and on fairly agreeable terms.

In fact, not only will Genentech exercise Protein Design's licenses for Xolair, but the scope of the discussion was expanded to address other drugs. Protein Design will now receive royalty payments on Genentech and Xoma's (NASDAQ:XOMA) co-developed psoriasis drug, Raptiva, as well as Avastin -- the potential blockbuster angiogenesis drug that has sent Genentech shares on a tear and which Genentech hopes will be approved by March.

In exchange for the expanded agreement, Protein Design will see lower royalty payments once all three drugs reach a certain sales volume, presumably in three to five years.

Protein Design made off pretty well here. The company needs Genentech, and it is certainly good to have this episode behind it. In addition, Protein Design will see shorter-term gains from Raptiva and Avastin, though it will sacrifice some payments in the future in exchange.

A definitive settlement arrangement is expected some time this month.

Discuss the settlement on the Protein Design Labs, Genentech, and Biotechnology discussion boards -- only at Fool.com. Jeff Hwang can be reached at JHwang@fool.com.