Its decision comes one month after it failed to persuade the Court of First Instance to overturn the Commission’s 2004 antitrust decision.

Neelie Kroes, Europe’s Competition Commissioner, told reporters in Brussels last week that she had been in contact with Steve Ballmer, Microsoft’s CEO, almost everyday for more than two weeks.

As a result of the discussions, the software company has agreed to slash the royalties it requests for a worldwide licence for interoperability-related information – including patents – from 5.95% to 0.4%. This is less than 7% of the royalty originally claimed, Kroes said.

She continued: "I told Microsoft that the royalties for access to its secret interoperability information were unreasonable and had to be reduced. Microsoft has now abandoned its demand for a royalty of 2.98 % of revenues from software developed using licensed information. That percentage royalty has become a nominal, one-off payment of €10 000. This is all that has to be paid by companies that dispute the validity or relevance of Microsoft's patents."

The company has also pledged to make interoperability information available to open source developers on licensing terms that allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model.

In addition, Kroes said that Microsoft will give legally binding guarantees to licensees about the completeness and accuracy of the information it provides and agreed that the licensee can obtain effective remedies, including damages, from the High Court in London.

"These private enforcement tools come on top of the Commission’s powers and continued vigilance to ensure that Microsoft complies with its obligations in this area as in others," the Commissioner said.

She concluded: "Put together, these changes in Microsoft's business practices, in particular towards open source software developers, will profoundly affect the software industry. The repercussions of these changes will start now and will continue for years to come."

In a statement, Microsoft said: "At the time the Court of First Instance issued its judgment in September, Microsoft committed to taking any further steps necessary to achieve full compliance with the Commission’s decision. We have undertaken a constructive discussion with the Commission and have now agreed on those additional steps."

"We will not appeal the CFI’s decision to the European Court of Justice and will continue to work closely with the Commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world."