Under the 10-year pact with Microsoft, the software company will pay Sun $700 million to resolve antitrust issues and $900 million to resolve patent issues, the companies said. The companies will pay royalties to use each other's technology; Microsoft is paying $350 million now, with Sun to make payments when it incorporates technology later.

"Our companies will continue to compete hard, but this agreement creates a new basis for cooperation that will benefit the customers of both companies," Microsoft CEO Steve Ballmer said.