Under the previous agreement, the license was set to run through 2003. However, neither the old deal nor the new one is exclusive--allowing Handspring to use more than one OS.
Donna Dubinsky, Handspring's chief executive, and Jeff Hawkins, its chief product officer, have said recently that the company could explore other operating systems if the alternatives allowed them to introduce features that they couldn't offer with the Palm OS. However, company representatives have also said that no such features exist yet.
Palm's only significant OS rival is Microsoft's Pocket PC.
About 90 percent of handhelds on the market run on the Palm OS, including those from Palm, Handspring and Sony. Once heralded for its simplicity, Palm's OS has recently received criticism as being too simple and thus forcing its licensees to take an active role in beefing up the OS. Handspring has helped to add USB support and 16-bit color to the OS, for example, and Sony plans to bring audio capabilities to the OS in the next version of its Clie.
"Extending the license ensures that we can continue to build great Palm OS-based products for many years to come. It also guarantees that Palm and Handspring will continue to work together to refine and enhance the Palm OS so that it will meet the needs of the rapidly changing mobile computing market," Hawkins said in a statement.
Financial terms of the deal were not disclosed.
In the future, the Palm OS will include support for wireless communication standards--including Bluetooth--secure transactions, and enhanced multimedia and graphics support.
After helping to found Palm, Hawkins and Dubinsky left to form Handspring in 1998.
Although Palm and Handspring share an OS, they are also rivals. Palm is the No. 1 handheld maker. Handspring is No. 2 and has rapidly picked up market share.
As Handspring announced the licensing extension, Palm said it is cutting the price of several older models to attack its current inventory glut.
Handspring is set to report quarterly earnings on Thursday.
In related news, Sprint PCS announced Wednesday that it will begin selling its version of the Kyocera smart phone, which uses the Palm OS. It will go on sale by mid-April for $499. Verizon Wireless began selling the combo cell phone/handheld computer last month.
Sprint will also sell kits that will allow Palm III and Palm V series handhelds to connect to the Web via Sprint cell phones. They will cost $19 to $49.