The dispute stems from a suit Xerox filed against a predecessor company to Palm Inc., charging that the handwriting-recognition technology sold as "Graffiti" and formerly used in some Palm devices infringed on a Xerox patent, known as the Unistrokes patent.
The $22.5 million payment covers a fully paid-up license for three Xerox patents, including Unistrokes, Palm said.
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The two sides also agreed to "patent peace," or a seven-year mutual covenant not to sue within mutually agreed fields of use.
Palm said it would account for the license as a charge against earnings in its fiscal fourth quarter results.
In a separate statement, Xerox said net proceeds of the payment would be mostly offset by costs related to the settlement of other legal matters.
Xerox also said it was not updating or reaffirming its previously issued earnings guidance.
The company's last forecast in April projected second-quarter earnings between 22 cents to 24 cents per share, including charges for terminating a 2003 credit facility.