What is a LIT file?
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Files that contain the .lit file extension store electronic books that have been saved in the Microsoft LIT file format. The LIT file format is used by the Microsoft Reader software application and was originally released by Microsoft in August of 2000.
Microsoft Reader is a free application that users can run to read eBooks on devices that run on the Windows operating system. LIT files contain the actual contents of the digital book as well as book's digital rights information. This information limits the number of systems that each digital book can be read on, protecting the eBooks copyright rights.
DRM-protected LIT files are only readable in the proprietary Microsoft Reader program, as the .LIT format, otherwise similar to Microsoft's CHM format, includes Digital Rights Management features. Other third party readers, such as Lexcycle Stanza, can read unprotected LIT files.

The Microsoft Reader uses patented ClearType display technology. In Reader navigation works with a keyboard, mouse, stylus, or through electronic bookmarks. The Catalog Library records reader books in a personalized "home page", and books are displayed with ClearType to improve readability. A user can add annotations and notes to any page, create large-print e-books with a single command, or create free-form drawings on the reader pages. A built-in dictionary allows the user to look up words.
In August 2011, Microsoft announced they were discontinuing both Microsoft Reader and the use of the .lit format for ebooks at the end of August 2012, and ending sales of the format on November 8, 2011.