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Microsoft will pay AOL Time Warner $750 million to settle a private antitrust suit filed on behalf of Netscape Communications by America Online in January 2002, the companies announced Thursday.

As part of the deal, AOLTW's America Online 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 work together to make their respective instant messaging clients work together, though "no time frame has been set for that," Microsoft Chair 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 said. 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 U.S. Federal District Court for the District 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 U.S. 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."

Banding Together on Media

One aim of the agreement is to develop what the companies call a "digital media environment" that is free from piracy, is open to companies across various industries, and provides consumers with access to content. AOLTW will use Microsoft's Windows Media 9 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," said Dick Parsons, AOLTW chair and chief executive officer, during a press conference.

The collaboration between AOLTW and Microsoft will not end AOL's work with RealNetworks, Parsons said. "This gives us the opportunity to expand the loop and work more cooperatively with Microsoft as well in some of these areas--none of these are exclusive kinds of arrangements or deals," Parsons said.

Analyst David Smith of 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 said.

(Stacy Cowley in New York contributed to this report.)

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