Microsoft will pay AOLTW (AOL Time Warner) US $750 million to settle a private antitrust suit filed on behalf of Netscape Communications by AOL in January 2002, providing AOL customers with access to such applications as Microsoft's Internet Explorer, Instant Messenger and its digital media services.

As part of the deal, AOLTW's internet division will receive a royalty-free, seven-year license to use Internet Explorer with AOL's client software, the companies said. They will also operate alongside each other to make their respective instant messaging clients work together, though "no time frame has been set for that", Microsoft Chairman and Chief Software Architect Bill Gates said at a press conference to discuss the deal.

The industry giants will also collaborate on long-term initiatives for distributing digital media to consumers, and to support new business models for content owners, the companies added. Microsoft will further provide AOL with a new worldwide distribution channel for software to certain PC users, and provide technical cooperation and information "to ensure the best possible AOL member experience on current and future Microsoft operating systems".

The antitrust suit, filed in US Federal District Court of Columbia, alleged that Microsoft harmed Netscape's browser business through anticompetitive practices related to the Windows operating system. That suit was filed after a US District Court ruled that Microsoft engaged in anticompetitive practices in violation of federal antitrust law and illegally used its Windows operating system monopoly. Using that case and the subsequent appellate ruling that upheld the District Court findings, Netscape argued that Microsoft's practices "resulted in harm to competition and antitrust injury to Netscape in particular".

One aim of the agreement is to develop what the companies call a "digital media environment" that is free from piracy, open to firms across various industries and provides consumers with access to content. AOLTW will use Microsoft's Windows Media 9.0 series and future software to create, distribute and play back digital media under a long-term, nonexclusive aspect of the deal.

"We've not been able to get our arms around the piracy issue, and I think by agreeing to work cooperatively together, we can begin to make a real positive statement and step in the direction for creating a world where content can be distributed digitally to consumers," Parsons said during the press conference.

AOLTW and Microsoft will also "explore ways to establish interoperability" between their respective instant messaging clients, according to a statement, though a timeframe for that has not yet been established, Gates said.

The deal further underlines AOLTW's move away from technology development, said Matt Rosoff, an analyst with directions on Microsoft. "I think the Netscape unit is a loss", he said. "I think that AOL's current management is not interested in being a technology company."

Analyst David Smith of research firm Gartner said he wasn't surprised by the settlement news. "We've been on the record predicting that these two companies are far more likely to end up as partners than competitors," he said. As for the monetary part of the settlement, $750 million is "nothing" for Microsoft, he added.