The companies have been in legal squabbles for five years, with smartphones and video games at the heart of their disputes.
Microsoft had claimed that the Google Android operating system used some of its technology.
The companies said they will now work together to develop patents in collaboration with other companies such as Netflix and Amazon.
And they are also to engage in intense lobbying to get a unified patent system across the European continent. The European Union has a plan to set up an EU patent court.
Neither firm would say how much they have both wasted on the failed litigation.