Sharman Networks Ltd., which produced and distributed the popular Kazaa software, also promised to "use all reasonable means" to discourage online piracy, including building into its software "robust and secure" ways to frustrate computer users who try to find and download copyrighted music and movies, court papers said.
The settlement included payment of $115 million to music companies and a lesser amount to the movie industry, said people familiar with those provisions. They agreed to speak on condition of anonymity because some provisions were included in secret agreements not disclosed in the public court papers. Sharman Networks has already paid nearly all the money to the entertainment industry, these people said.
"While the award may seem like a vast pot of money, it will merely offset the millions we have invested, and will continue to invest, in fighting illegal pirate operations around the world and protecting the works that our artists create," said the vice chairman for EMI Music, David Munns.
The settlement concludes legal battles against Sharman Networks around the world. Sharman Networks has boasted that its Kazaa software was downloaded more than 389 million times, and the company operated the underlying "Fast Track" file-sharing network that connected tens of millions of personal computers.
It was not immediately clear how or when Sharman Networks will impose filters to frustrate its customers from distributing copyrighted files illegally. Justin Timberlake's "Sexy Back" and Chamillionaire's "Ridin' Dirty," two popular, modern hits, were available on Sharman's network without cost hours after the settlement was announced.
"Services based on theft are going legit or going under, and a legal marketplace is showing real promise," said Mitch Bainwol, head of the Washington-based Recording Industry Association of America, the trade group for the largest labels.
The head of the Motion Picture Association of America, Dan Glickman, called the settlement an important victory in a historic legal case.
Sharman Networks indicated it will negotiate licenses with entertainment companies to distribute music and movies lawfully over its Kazaa service, similar to Apple Computer Inc.'s iTunes service. The settlement does not prohibit Sharman Networks from legally distributing copyrighted files.
The chief executive of Sharman Networks, Nikki Hemming, said the settlement "marks the dawn of a new age of cooperation" between file-sharing services and the entertainment industry. "This settlement ensures that we will be working together with the content providers to the benefit of consumers, businesses and artists," she said.
The Supreme Court ruled last year the entertainment industry can file piracy lawsuits against technology companies caught encouraging customers to steal music and movies over the Internet. Earlier this month, in a related federal lawsuit, a U.S. judge said evidence was "overwhelming" against StreamCast Inc., which produced similar software called "Morpheus" for downloading music and movies.