CEO and co-founder of Microsoft,
Bill Gates

According to Thursday's settlement, AOL-Time Warner gets free licence to Microsoft browsing software for seven years. Microsoft also would license its digital media technology to AOL, as well as work with the company to promote digital media initiatives.

AOL had alleged that Microsoft used anti-competitive business practices to ensure the dominance of its Internet Explorer browsing software over Netscape's software. AOL argued that Microsoft made deals with computer manufacturers and others to shut out Netscape and quosh competition.

After once dominating the web browsing market, Netscape today commands less than five percent market share, according to several industry measures. Microsoft's Internet Explorer on the other hand has gained more than 90 percent of the market.
 
"While our companies will continue to compete, I'm pleased that we've been able to resolve our prior dispute and I'm excited about the opportunity to work together collaboratively to make the digital decade a reality," Microsoft chairman Bill Gates said.

AOL Time Warner's chairman and chief executive, Dick Parsons, said he welcomed the opportunity to build a more productive relationship with Microsoft.

"Our agreement to work together on digital media initiatives marks an important step forward."

The companies also will explore how to integrate their popular instant-messaging networks to allow users of one company's service to use the other's. There is no schedule for when that will happen, Gates said.

According to the settlement, Microsoft will also provide technical information on its current and future Windows operating systems to AOL to ensure that AOL products perform well there.

Analysts said both companies will applaud the deal. Debt-ridden AOL Time Warner will receive a large sum of cash, while Microsoft is able to remove a major legal burden and give its digital rights management technology a public relations boost.

As Gates noted, the agreement provides a base for the world's largest software company to collaborate with one of the world's largest entertainment companies in the emerging world of digital media.

"It's a forward-looking agreement," Gates said. "I was impressed with the fact that they are looking forward, and I'm very happy with what we've come up with here."