Microsoft and IBM today announced an agreement whereby Microsoft will pay $775m to end the bitter and long-running antitrust battle that has dogged relations between two companies for a decade.

The settlement resolves claims arising from the United States v. Microsoft antitrust case in the mid-1990s, in which IBM was identified by US District Judge Thomas Penfield Jackson as having been "impacted in its business by certain Microsoft practices".

Under the terms of the agreement, Microsoft will pay IBM $775m and extend $75m in credit towards deployment of Microsoft software at IBM.

In addition to addressing all discriminatory pricing and overcharge claims based on the findings in the US antitrust case, Microsoft stated that the settlement resolves all antitrust claims, including those related to the IBM OS/2 operating system and SmartSuite products.

However, it does not cover claims for harm to IBM's server hardware and server software businesses caused by Microsoft's alleged abuse of monopoly.

IBM has agreed "subject to certain limitations" that it will not assert claims for server monetary damages for two years, and will not seek to recover damages on such claims incurred prior to 30 June 2002.

In November 2003, Microsoft and IBM entered into tolling agreements extending the statute of limitations on antitrust claims based on the US antitrust case while exploring resolutions that would avoid protracted litigation.

The tolling agreement was set to expire in July 2005, and the parties have been engaged in settlement discussions during the past two months.

Brad Smith, general counsel and senior vice president at Microsoft, said: " Over the last few years we have been focused on resolving our disputes with other companies, and today's announcement takes another significant step towards achieving that goal."

Ed Lineen, senior vice president and general counsel at IBM, added: "IBM is pleased that we have amicably resolved these long standing issues."