Microsoft will pay AOL Time Warner (AOLTW) $US750 million to settle a private antitrust suit filed on behalf of Netscape Communications by America Online in January 2002.
As part of the deal, AOLTW's America Online Internet division would receive a royalty-free, seven-year license to use Internet Explorer with AOL's client software, the companies said.
They would also work together 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 would 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 would 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 for the District of Columbia, alleged that Microsoft harmed Netscape's browser business through anti-competitive practices related to the Windows operating system. That suit was filed after a US District Court ruled that Microsoft engaged in anti-competitive 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 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," AOLTW chairman and chief executive officer, Dick Parsons, said.
The collaboration between AOLTW and Microsoft would 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," he said.
Gartner analyst, David Smith, 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, $US750 million is "nothing" for Microsoft, he said.