The European Commission said it had obtained concessions from Microsoft that would enable the rival, Santa Cruz Operation (SCO), to develop a competing software product.
The announcement followed a ruling earlier this year from Brussels that the enforcement of an existing agreement between Microsoft and SCO infringed European competition law because it hampered the smaller company's ability to compete.
Microsoft has now agreed to change a 1987 contract which SCO had complained restricted its ability to develop a future version of its Unix operating system software for Intel-based server computers.
The commission said in a statement that the contract required SCO to base its Unix products on work done by Microsoft in 1987 and to pay a set royalty for licences based on the same work. It said this prevented SCO from competing fairly with Microsoft's MS Office operating system.
Microsoft has been under the eye of the EU and the US Justice Department since 1994 when the the two authorities joined forces to obtain changes to its licensing practices.
The commission's investigation of Santa Cruz's complaint was only one of about half a dozen Microsoft-related anti-trust cases pending in the European Union, an EU source said.