The agreement, announced Friday, will result in a $775 million payment to IBM and a $75 million credit toward Microsoft software.
In the course of the U.S. Justice Department's antitrust suit against Microsoft, the government claimed that IBM suffered from Microsoft's discriminatory pricing and overcharging practices, according to a Microsoft statement released Friday.
The settlement resolves those antitrust claims, as well as those related to IBM's OS/2 operating system and SmartSuite desktop application suite.
"IBM is pleased that we have amicably resolved these longstanding issues," Ed Lineen, senior vice president and general counsel for IBM, said in the statement.
The pact does not cover claims for alleged harm to IBM's server hardware or server software business.
As part of the settlement, IBM has agreed to not seek monetary damages related to server products for two years and not make server-related claims involving events prior to June 30, 2002, according to Microsoft's statement.
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