(Newstream) -- Microsoft Corp. (NASDAQ:MSFT) and AOL Time Warner Inc. (NYSE: AOL) today announced an agreement to collaborate on long-term digital media initiatives that will accelerate the adoption of digital content, and to settle the pending litigation between their companies. The two companies have also agreed to a new royalty-free, seven-year license of Microsoft's browsing technology and a variety of steps designed to ensure that their products work better with each other.

Under the digital media agreement, the companies will work together on a series of initiatives to support the more rapid deployment of digital media for consumers and support new business models for content owners through digital rights management technology. The companies aim to help develop a successful digital media environment that is secure from piracy, open to all companies across multiple industries, and offers consumers access to broad content in a compelling manner that is easy to use. As part of this agreement, the two companies have entered into a long-term, non-exclusive license agreement allowing AOL Time Warner to use Microsoft's Windows Media 9 Series and future software for creating, distributing and playing back high-quality digital media.

The legal settlement resolves the private antitrust lawsuit filed against Microsoft in January 2002 by AOL Time Warner's America Online Inc. unit on behalf of its subsidiary, Netscape Communications. As part of the settlement, Microsoft will pay $750 million to AOL Time Warner.

In addition, as part of the announced settlement, Microsoft has agreed to provide AOL Time Warner's AOL online service with a new distribution channel for its software to certain PC users worldwide. Also, the two companies will cooperate to ensure the best possible AOL member experience on current and future Microsoft operating systems, including commitments by Microsoft for technical cooperation and information disclosures.

"With Microsoft's media technology expertise and AOL Time Warner's content expertise, we believe we can accelerate the adoption of digital media for the Internet and help content providers across the entire industry," said Bill Gates, Microsoft chairman and chief software architect. "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."

AOL Time Warner Chairman and CEO Dick Parsons said: "We welcome the opportunity to build a more productive relationship with Microsoft. Our agreement to work together on digital media initiatives marks an important step forward in better serving consumers and protecting the interests of all content businesses. We look forward to others in the media and entertainment industries joining together with us to help to advance the digital distribution of content to consumers while maintaining copyright protection."