Online chat company Paltalk Holdings, Inc. and Microsoft Corporation have formally dismissed the patent suit between them in the Eastern District of Texas.

In the suit, Paltalk alleged that the chat and communication features in Microsoft’s XBox Live service infringed Paltalk’s patents 5,822,523 and 6,226,686, both entitled “Server-group Messaging System for Interactive Applications,” and sought tens of millions of dollars in damages. Microsoft alleged that the asserted claims were invalid, and that their service did not infringe those patents.

The case went to trial in March of 2009, but it abruptly ended when the parties announced they had reached a settlement. The formal dismissal is a procedural step that formally closes the court’s books on the case.

The settlement means those patents have avoided having their validity and scope tested in that court, so they live to fight another day. No word yet on whether Paltalk will target some other unlucky online gaming company, but we’ll keep an eye out and keep you posted.

For those keeping track at home, the case cite is: Paltalk Holdings, Inc. v. Microsoft Corp., No. 2:06cv367 (E.D. Tx, filed Sept. 12, 2006).