Microsoft Corp. expects Adobe Systems Inc. to file a lawsuit against it in Europe over the use of software to make electronic document files, according to a report.

Comments by Microsoft's lead attorney Brad Smith in an interview with the Wall Street Journal published online on Friday revealed that both companies had engaged in secret talks, which broke down, to attempt to settle a four-month dispute over the use of technology found in Adobe's Portable Document Files (PDF) in Microsoft Office software.

Adobe wants Microsoft to remove the PDF technology and offer it separately for a fee. Smith says Microsoft has agreed to remove the software and is not willing to charge for it.

Adobe has threatened antitrust action unless Microsoft agrees to raise its prices, in particular for the software that would allow Microsoft Office users to save a document in the Adobe PDF format, he said in an interview with the Journal.

Currently, Microsoft's Office suite of applications, which include Word, Excel and Powerpoint cannot save files in PDF format. Allowing such a feature could potentially affect sales of Adobe's own PDF document-making software.