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By John Borland, 8 November 2005 11:45

NEWS

File-swapping company Grokster has agreed to stop distributing its peer-to-peer software, following a $50m legal settlement announced on Monday with Hollywood studios and record labels.

Along with co-defendant StreamCast Networks, Grokster had been accused by the music and movie industries of contributing to widespread copyright infringement by people who used its software to download songs and films. Monday's settlement comes four months after the US Supreme Court ruled substantially in the entertainment companies' favour.

Under the terms of the agreement, submitted in a Los Angeles federal court yesterday, Grokster will immediately stop supporting its file-swapping network, and Grokster's owners will be responsible for paying a total of $50m in damages to movie studios, record labels and music publishers.

Mitch Bainwol, CEO of the Recording Industry Association of America, said in a statement: "This settlement brings to a close an incredibly significant chapter in the story of digital music. This is a chapter that ends on a high note for the recording industry, the tech community and music fans and consumers everywhere."

Although a significant step toward bringing the four-year legal case to a close, the lawsuit is not over yet. Grokster's co-defendant, Morpheus parent StreamCast Networks, is still operating and has previously indicated it intends to continue fighting the case in lower courts.

However, momentum in the legal fight has shifted almost wholly to the entertainment industry's side.

For several years running, lower courts ruled in favour of Grokster and StreamCast, saying the companies were not responsible for their users' actions. The Supreme Court's ruling in June overturned that analysis overnight.

In a surprising unanimous decision, the nation's top court said companies that deal in file-swapping software - and by extension, any technology company - could be liable for their users' copyright infringement if they had encouraged or "induced" it in any significant way.

In the court's majority opinion, Justice David Souter wrote: "One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement."

That ruling has sent ripples of anxiety throughout the file-swapping world. The distributors of the WinMX software took their program offline a few months later. Executives at Meta Machine, which distributes eDonkey, the most popular file-sharing program, have said they hope to reach a settlement with the music industry, and change their business into a licensed, industry-approved service.

Grokster's agreement with the entertainment companies could help accelerate that process.

A Grokster attorney declined to provide additional details on the settlement, or specifics on the ultimate future of the company but said an authorised download service would ultimately emerge.

Attorney Michael Page said: "The brand will live on. It is shut down but we look forward to launching a licensed, legal new version of Grokster."

A source close to the company said the file-swapping network's assets would be acquired by Mashboxx, a legal peer-to-peer network supported by the record labels that is close to launching, and which was founded by former Grokster president Wayne Rosso. The new Grokster will essentially be a rebranded version of that Mashboxx service, the source said.

Visitors to Grokster's web page on Monday were met with a terse explanation of why the software was no longer available, citing June's Supreme Court ruling, and a promise that a new version would come.

The page said: "There are legal services for downloading music and movies. This service is not one of them."

John Borland writes for CNET News.com