
Microsoft chief executive Steve Ballmer said at a joint press conference that the partnership is "bridging a divide" for Linux.
"It comes to recognising that there is a mixed environment," said Ballmer, referring to the fact that most organisations run multiple systems next to each other.
"As of today, Novell is the only Linux vendor that is tackling the interoperability, patent and other issues that are really important to customers."
Novell chief executive Ron Hovespian added that the agreement will help Linux and Windows to continue to grow their markets.
"This will allow the customer to move through their development and deployment cycles faster," he said.
The agreement effectively provides a Microsoft endorsement to Novell's Linux distribution.
"Microsoft is now saying that it is OK to run Linux," Stuart Cohen, chief executive at the Open Source Development Labs, told vnunet.com.
As part of a patent cross licensing agreement, Microsoft will indemnify companies that purchase a licence for Novell's SLES distribution for all its patents.
The pledge also applies to developers, provided that their code is used in the SLES distribution or that they contribute to the OpenSus e.org project.
Microsoft will make a one-time upfront payment to Novell for the cross licensing deal. Novell will pay a fee for each SuSE support contract that it sells.
Ballmer claimed that Microsoft is unable to provide a broader patent pledge that would cover all Linux distributions because the company is unable to live with the conditions of the GNU General Public Licence.
He also indicated that Microsoft chose to partner with Novell because of the company's large patent portfolio.
The agreement gives Novell a big advantage over Red Hat, which indemnifies its customers against patent claims. Red Hat is the world's largest vendor of Linux support services.
Microsoft and Novell will also collaborate on interoperability, developing Web services standards that will allow companies to manage servers regardless of operating system.
The pair plan to provide interoperability between the Open XML and Open Document Format standards by building translators.
As another commitment to users running mixed data centres, the companies will collaborate on virtualisation.
As part of the agreement, Microsoft has committed to purchasing 70,000 licences for Novell's Linux distribution each year for the duration of the agreement that it will distribute to its customers.
Microsoft expects the coupons to be used to install Linux as virtual operating systems running on Windows servers, said Ballmer.
Microsoft has been making peace in recent years with some of its long-time adversaries such as Novell and Sun Microsystems. The software giant settled anti-trust lawsuits in 2004 with Novell for US$536 million and Sun for US$1.6 billion.
Sun and Microsoft have since started working on improving the interoperability between their applications.
The pair released specifications in May 2005 that enable single sign-on between systems that use the WS-* and Liberty Alliance standards for Web services.
Microsoft has not until today been working with any particular Linux vendors and instead opted to work with the Linux community in general.
The company has a Linux and open source interoperability lab where it tests its own software, and earlier this year launched the Port25 website where it solicits feedback from open source developers.