The agreement in the class-action lawsuit needs the approval of U.S. District Judge Frederick Motz in Baltimore, who is overseeing the case. There was no timetable for Motz's decision, Microsoft spokeswoman Stacy Drake said.
"We are pleased to settle the case and feel it further underscores our efforts to work collaboratively to resolve legal conflict where it's reasonable to do so," Drake said.
One of the lead lawyers for the plaintiffs, Stan Chesley, said in a statement released by Microsoft: "We are very pleased that this portion of the case is resolved with full damages being recovered." Chesley did not immediately return a call Tuesday to his office.
Attorneys for the plaintiffs, who included individuals and businesses, originally argued there were millions of license-holders for certain Windows software who should be part of the class, Drake said.
But the group was narrowed in April to people who bought the software either through Microsoft's Web site between Feb. 22, 1999, and April 30, 2003, or through certain Microsoft direct marketing campaigns between Nov. 10, 1995, and April 30, 2003, Drake said.
About 550,000 licenses are represented in the class.
She said the types of software were primarily Windows operating systems and some MS-DOS operating systems.
Under the settlement, Microsoft will pay each buyer 55 percent of the cost of the software. The costs of the software involved varied over several years, Drake said. A professional version of Windows XP currently costs about $300 and the home edition sells for about $200.
Rob Helm, director of research at Directions on Microsoft, an independent research firm, said the settlement was a positive for Microsoft.
"It's certainly not going to put a dent in Microsoft's pockets," Helm said. "This is clearly a victory, in the sense that Microsoft wants to settle these cases. From a Microsoft perspective, the bad PR outweighs any benefit it would gain by fighting this to the bitter end."
Microsoft has settled several lawsuits, including an antitrust case with the federal government and all but one state that had sued over its use of the Windows operating system to muscle out rivals.
In a separate settlement, the company agreed to pay $750 million to AOL Time Warner Inc., which had seen an erosion in the market share of its Netscape browser as Microsoft's Internet Explorer grew.
And Microsoft came to terms with a rival operating system developer called Be Inc., which had complained it could not compete because Microsoft had agreements with major computer makers to install Windows.
Still pending are lawsuits by Sun Microsystems Inc. and Burst.com Inc.