Internet portal Yahoo Inc. (YAHOO) said Monday it will drop a patent lawsuit against Web search firm Google Inc. (search), which will increase the size of its planned initial stock offering to pay for a license for technology from its closest rival.

Google increased the number of shares it will offer in an widely expected initial public offering later this month, to 25.7 million from 24.6 million, with the extra shares allotted to Yahoo in order to pay for a technology license used to display ads alongside search results, Google's main source of revenue.

As a result of the settlement, Google said it will post a net loss in the current quarter to September, due to a noncash charge of between $260 million and $290 million.

Internet portal Yahoo will sell most of its shares from the settlement, worth as much as $149 million at the high end of Google's expected IPO price range, leaving it with a 4.1 percent stake in Google, according to an amended filing made with the Securities and Exchange Commission (search).

Yahoo was an early investor in Google, its closest rival, and will also hold 4.95 million super-voting Class B shares, a 2.1 percent stake, after the IPO.

Under terms of the settlement, Google will license a patent held by Overture Services (search), which Yahoo acquired last year. The dispute over that patent had threatened Google's lucrative AdWords program, which serves up ads with search results linked to certain keywords.

"We are pleased to have resolved these issues, and with the terms of the agreement," said Google spokesman Steve Langdon.

In its complaint filed in April 2002, Overture alleged that Google's keyword system violated its 2001 patent entitled "system and method for influencing a position on a search result list generated by a computer network search engine."