Today's agreement covers legal claims surrounding IBM's OS/2 operating system and Smart Suite software, products that failed to make much inroads against Microsoft's Windows operating system, which operates the vast majority of the world's personal computers.

"IBM is pleased that we have amicably resolved these long standing issues," said Ed Lineen, general counsel for IBM, in a statement.

The IBM settlement is one of the largest Microsoft has agreed to as it seeks to clear up a series of legal claims filed by rivals and government antitrust authorities. Redmond, Wash.-based Microsoft has paid several billion dollars to settle antitrust lawsuits filed by companies ranging from Time Warner Inc. to Sun Microsystems Inc. Last month, Microsoft agreed to pay $150 million to resolve antitrust issues filed by computer maker Gateway Inc.

IT World adds some detail:

The settlement resolves all discriminatory pricing and overcharging claims stemming from the U.S. government's mid-1990s antitrust case against Microsoft, the companies said in a press release. The settlement also resolves most other IBM antitrust claims, including those related to its OS/2 operating system and SmartSuite products. IBM's claims of harm to its server hardware and server software businesses are not covered by the settlement, however. . . .

As part of the settlement, Microsoft will extend $75 million in credit toward deployment of Microsoft software at IBM. IBM will not make claims for server monetary damages for two years and will not try to recover damages on server claims made before June 30, 2002.

In other words, IBM hadn't sued yet and now says it won't in the ways outlined. BusinessWeek has more:

IBM hadn't sued Microsoft, but still pressed for retribution for the behavior cited by Jackson. Microsoft reached a similar deal with Gateway Computer Corp. for $150 million in April.

Separately, Microsoft has spent more than $3 billion in recent years settling lawsuits by rivals, including a $1.6 billion deal with Sun Microsystems Inc. in 2004 and a $750 million truce with America Online, part of Time Warner Inc., in 2003.

Redmond, Wash.-based Microsoft still faces other legal challenges, including a lawsuit by RealNetworks Inc. and an appeal of a $600 million antitrust ruling against it by European regulators.

Even so, Microsoft's general counsel, Brad Smith, said he believes the antitrust issues are close to being resolved. IBM had been the biggest rival with a pending claim.

A lot of litigation is settled before it ever hits the courthouse, by the way, particularly when the potential defendant figures it can't win or it would be cheaper to settle than to fight. Microsoft's press release, which is the same as IBM's, tells us why now:

In November 2003, Microsoft and IBM entered into tolling agreements extending the statute of limitations on antitrust claims based on the U.S. antitrust case while exploring resolutions that would avoid protracted litigation. Microsoft’s and IBM’s tolling agreement was set to expire in July and the parties engaged in settlement discussions during the last two months.

For those of you who leave comments about Microsoft walking away scot-free from the U.S. government's antitrust case against it, please note that being found guilty resulted in massive damages. Paying victims off after the fact doesn't fix the problem, though, particularly from the point of view of the consumer, who is still left with having to cope with a monopoly and fewer software choices than otherwise would have been available. That's the problem that needs fixing, and settlements don't address that problem at all, which is very likely exactly why Microsoft is willing to pay out settlements rather than changing the behavior that brought it into litigation in the first place. How profitable it must be, being a monopoly, if paying out billions is cheaper than changing. That doesn't mean there is no effect on Microsoft. Here's an older article on the effect antitrust litigation had on IBM, when they were on the hot seat years ago, even though they were never even found guilty the way Microsoft has been.