As a result of the settlement, Microsoft will pay $US20 million to Sun, terminate all Java licences, and agree to a permanent injunction against the use of the Java Compatible logo.
"They can continue to distribute an outdated version of our technology, but they can't use Java for .NET," said Patricia Sueltz, Sun's executive vice president, Software Systems Group. .NET is Microsoft's Internet applications strategy.
What Microsoft can continue doing, under a limited license, is sell existing inventory of products, only with the 1.1.4 implementation of Java that Microsoft currently has, but the company cannot modify those implementations at all, Sueltz added.
The limited license covers only the products already containing the Java technology, and lasts only for seven years. Beyond that, Microsoft has no rights to distribute the Java technology, or to otherwise use any of Sun's intellectual property, Sun said.
The settlement is not a surprise, according to analysts, because Microsoft did not appear to be in a position to win the case. Company officials have also declared publicly that Microsoft is not interested in using Java for .NET.
"The settlement doesn't change anything about Microsoft's strategy," said Rikki Kirzner, an analyst at market research firm IDC. "They've gone ahead with their own plans, and C#."
C# is Microsoft's latest programming language, which has garnered the reputation of being the company's attempt at a "Java killer." The new language is also a key piece of the company's forthcoming development suite, Visual Studio.NET.
In the long run, Kirzner continued, Microsoft not using Java won't hurt Java either because it is being driven by overwhelming support from third-party ISVs and developers, as well as major players, such as IBM.
The settlement comes one day before the companies were due to meet in US District Court for a case management hearing, where the judge overseeing the dispute had been expected to set a date for the case to come to trial.