Nokia and Apple announced a patent license agreement on Monday that settles a long and bitter dispute.

The agreement marks the end of all patent litigation between the two companies and the withdrawal by Nokia and Apple of their complaints to the U.S. International Trade Commission (ITC). Nokia said on Monday that the agreement consists of a one-time payment paid by Apple and then on-going royalties to be paid by Apple to Nokia for the term of the agreement. Neither company revealed specific terms of the contract or its length, noting that they are confidential.

“We are very pleased to have Apple join the growing number of Nokia licensees,” said Stephen Elop, president and chief executive officer of Nokia. “This settlement demonstrates Nokia’s industry leading patent portfolio and enables us to focus on further licensing opportunities in the mobile communications market.”

Nokia’s stock suffered recently after the company revealed its second quarter outlook isn’t great. The phone maker downgraded its own outlook and expects device and services net sales to be “substantially below” its previous estimates. The revelations saw the company’s stock price drop by 15% on the NYSE earlier this month. Fears for Nokia’s short and long term prospects grew earlier this month as investors turned their backs on the company.

Research analysts IDC and Gartner have both predicted that Microsoft’s Windows Phone devices will beat iPhone sales by 2015. News of a Nokia patent deal with Apple will likely benefit Windows Phone in the long term. Both Nokia and Microsoft are investing a significant amount of money, time and effort into marrying their hardware, software and services to create a unique ecosystem. Additional revenue from Apple’s iOS devices may help Nokia maintain its large spend on research and development, currently estimated at $3.9 billion a year. Nokia’s patent deals with rival firms are also an essential source of revenue from the company, one that appears to have been bolstered by the Apple agreement. Although the terms of the deal are confidential, Nokia and Microsoft stand to benefit from any patent deal that covers GSM technologies. The timing of the deal suggests that Nokia’s decision to use Windows Phone 7 on its devices may have prompted an end to two years of legal wrangling. Apple and Microsoft have both signed a number of cross-licensing agreements in the past so it’s possible that Apple is covered in some respects.

The agreement will also help Microsoft battle Android with its new partner, Nokia. Microsoft has been pursuing a number of Android-based handset makers recently. The company is trying to muscle the vendors into agreeing a patent deal in an attempt to thwart the spread of Android and Chrome OS. Microsoft filed a lawsuit against Motorola in October, claiming their Android handsets infringed nine Microsoft patents. Microsoft and HTC signed a patent agreement last year relating to HTC’s mobile phones running Android. Although the terms of the deal were undisclosed, a Citi analyst recently claimed that the software giant receives $5 per device. The result is that Microsoft generates more income from Android than Windows Phone based on the number of HTC devices shipped with Android. Florian Mueller, an award-winning intellectual property activist, speculates that Android-based devices are highly likely to infringe on the same Nokia patents that Apple has been forced to pay for. We’ll have to wait and see in the coming months whether Nokia moves to tackle Android vendors head-on.

Nokia is now planning to produce a number of Windows Phone devices for release later this year. Nokia has promised to supply a batch of Windows Phone Mango devices and new devices every few months. Nokia’s Windows Phone devices are currently labelled with “W” (for Windows). The first handset is expected to be a variant of Nokia’s X7 device. The prototype is equipped with a WVGA display, Qualcomm QSD8250 chipset and 8MP camera. Nokia is also rumored to be launching a dual-core N8 variant with a 12MP camera, QWERTY touchscreen candy bar phone and a cheaper touchscreen device with less expensive body.