A spokesperson for Sendo said the allegations were "serious and substantial". The handset maker filed a suit against the software giant in a federal court in Texas in the US.

The move follows Sendo's unexpected decision last month to abandoned plans to sell a device using Microsoft's operating system, the Smartphone 2002, originally knows as Stinger. Sendo is instead using Nokia's Series 60 Platform in a mobile phone now under development.

The Finnish company's Series 60 is an interface and set of smartphone applications based on the Symbian operating system, and is already used by other companies developing mobile devices, including Siemens, Samsung and Nokia itself.

Sendo was one of the first to partner with Microsoft to use the software giant's Smartphone 2002 system. The Birmingham, England based company was within weeks of shipping the Z100, a tri-band GPRS enabled phone, to European retailers and carriers. It is unlikely it will now launch a Series 60 based product before the middle of next year.

Back in November, Sendo would not comment on why it terminated the deal with Microsoft "because of legal reasons". Neither would the company comment on the future of the minority, roughly 10% stake Microsoft holds in the handset maker, for which it paid about $10m last July.

Sendo is understood to have had concerns that some of the features it had introduced for the Smartphone it was developing in conjunction with Microsoft have since been adopted in other hand-held devices that Microsoft has been working on with other partners.

One of these may be the handset launched late October by Orange, the SPV, which uses Microsoft's operating system and is manufactured by Taiwanese group High Tech Computers

Microsoft declined to comment on Monday about this or Sendo's legal action.

However, the lawsuit is yet another blow to Microsoft's ambition to establish itself as one of the leading suppliers of software in mobile phones.