UPDATE 1-LKQ settles patent dispute with Ford

* Settlement of patent dispute on Ford's car parts

* LKQ sole distributor of non-original Ford car parts

* LKQ to pay Ford royalty for each part sold

April 1 (Reuters) - Automobile-parts recycler LKQ Corp (LKQX.O) will be the only distributor of copies of Ford Motors Co's (F.N) replacement car parts, as part of an agreement to settle a patent dispute between the two companies.

LKQ Corp, on its part, agreed not to challenge the validity and enforceability of Ford Motors' design patents during the agreement's term, which extends through Sept. 30, 2011.

The litigation was filed by Ford to protect its design patents on genuine Ford collision parts.

"As the sole distributor of new non-original equipment aftermarket parts protected by Ford design patents, we will have the sole right to sell these parts in the United States for all of Ford's models," LKQ Chief Executive Joseph Holsten said in a statement.

LKQ will pay Ford a royalty for each such part sold during the agreement's term. Other details of the agreement were not disclosed.

The companies said they will work together to stop infringement of Ford's patent rights, but continue to compete vigorously.

Ford said the settlement "does not endorse the quality or use of non-original equipment aftermarket replacement parts sold by LKQ Corp."

Shares of LKQ were down 10 cents at $14.17 in afternoon trade Wednesday on Nasdaq. (Reporting by Eric Yep in Bangalore; Editing by Ratul Ray Chaudhuri)