Instead, users who purchase Office 2007, due out to consumers in January, will have to download separate, free software to save documents created in Office products such as Word and Excel as PDFs.
The spat with Adobe, which developed the popular PDF, or Portable Document Format, comes as Microsoft is preparing to launch its own competing format for saving documents that cannot be easily modified. Microsoft's technology is called XPS, which stands for XML Paper Specification.
Microsoft had previously said Office 2007 would use freely available tools to add the PDF functionality. But on Friday, a Microsoft lawyer said Adobe had objected to Microsoft's plans and discussions between the two companies had broken down.
David Heiner, Microsoft's deputy general counsel, said Adobe had wanted Microsoft to charge customers for the ability to save Office documents in either the PDF format or Microsoft's new, competing XPS format.
Heiner said Microsoft would not agree to charge for the capabilities, but did decide to offer them as separate, free downloads.
He said Microsoft expects Adobe to take legal action, perhaps in the European Union.
In an e-mail to The Associated Press, Adobe spokeswoman Jodi Warner said: "As our CEO Bruce Chizen has stated numerous times in the past, Microsoft has a monopoly and we are always concerned about the possibility that they might abuse that monopoly."
Warner said Adobe has discussed those concerns with both Microsoft and regulators, but she declined to comment on the details of any discussions with the software maker.
A spokesman for European Union antitrust regulators said they are not involved in the dispute at this point.
"It is an intellectual rights issue, not a competition issue," said EU spokesman Jonathan Todd.
Adobe's PDF format is popular with government agencies and businesses in part because it allows users to share documents that can't easily be edited or changed. Also, users do not need to have a copy of Microsoft Word or another paid product to see documents.
Currently, creating a PDF file from Office requires separate software, ranging from the $449 Adobe Acrobat Professional to free products like Pdf995. Other word processing products also ship with tools for savings documents as PDFs.
In the closed-door discussions between the Microsoft and Adobe, Heiner said Adobe also raised concerns about new technology being built into the forthcoming version of Microsoft's Windows operating system that would let people save documents in Microsoft's competing XPS format. Heiner said Microsoft offered to ship Adobe's free Acrobat Reader, which lets people view PDF documents, with the new version of Windows, called Vista. He said Adobe was considering that request.
After many delays, Vista also is scheduled to be released to consumers in January. Heiner said he thought it would be possible to include the free Adobe Reader in Vista and still make the planned January consumer launch, although he said things would have to move quickly.
"We're saying to Adobe, if you have any concerns about Microsoft shipping XPS software in Windows, we will ship anything comparable you want," Heiner said.