Sony Computer Entertainment has decided it's better to work with Connectix, a developer of software that helps PlayStation games run on PCs, than to fight the company.

The companies announced Thursday a joint technology agreement under which they will work together on advanced "emulation" products that will allow PlayStation software to run on other systems. In addition, all legal issues surrounding San Mateo, Calif.-based Connectix's Virtual Game Station software have been resolved. Sony filed a copyright and patent infringement suit against Connectix in early 1999. Sony argued that because Virtual Game Station allowed PlayStation games to be played on PCs, it was harmful to game publishers, developers, creators and ultimately consumers. Sony makes a majority of its PlayStation-related revenue from licensing and royalty fees for PlayStation software; the actual consoles are sold at a loss. The same is true of other game manufacturers. But sales of peripherals such as controllers and memory cards help make up a significant revenue stream, and that may be part of the reason Sony has been so adamant about the suit against Connectix according to Gartner analyst P.J. McNealy. Under the agreement, Sony will acquire Connectix assets related to Virtual Game Station, but Connectix will continue to sell the software for Macintosh and Windows until the end of June. The companies will continue to develop emulation technology. Competition in the gaming industry is expected to get fierce this year as new consoles from Microsoft and Nintendo are released. However, Sony's PlayStation 2 will have a considerable head start. The consumer electronics giant said it expects to sell 3 million units in the United States by the end of the year and 9 million worldwide.