Former rebel MP3 file-swapping firm Napster has settled a lawsuit with music publishers and songwriters.

The company will pay £17.8m ($26m) to music publishers, plus a third of royalties owing to content owners for its licensed, paid-for subscription service scheduled to launch later in the year. Under the licence deal, Napster will pay £6.85m ($10m) up front.

Monday's settlement still has to be ratified by directors of the National Music Publishers Association and by US District Judge Marilyn Patel, who shut down Napster's free service earlier this year.

Songwriter George Weiss, president of the Songwriters' Guild of America, said: "This settlement, which only a few weeks ago seemed a near impossibility, will hopefully lead to immediate and unprecedented growth in the licensed use of music on the internet."

However, Napster has still to reach an accord with the more powerful Recording Industry Association of America, which represents US record labels.

Whether settling with Napster will much reduce the unauthorised distribution of material through peer-to-peer networks is another matter.

According to recent research from Webnoize, a combined 3.05 billion files were exchanged over file sharing systems FastTrack, Audiogalaz, IMesh and Gnutella in August alone. This is some 250 million more than the 2.79 billion traded over Napster at its February peak, when it dominated the sector.