The company behind the US-based BearShare file-sharing service has agreed to pay $30m (£16.2m) to avoid legal action from the music industry.
The record industry blames online piracy for falling CD sales
Free Peers Inc has agreed to no longer operate any unlicensed online music services, according to court documents filed in Los Angeles.
It will also sell its technology, rights to the BearShare domain name and user data to another company.
Four other companies challenged by the music industry have yet to settle.
The firms behind file-sharer services Kazaa and Morpheus are poised to fight a copyright case in Los Angeles.
Grokster, sued by an alliance of Hollywood film studios and recording companies five years ago, agreed last year to pay $50m (£27m) to settle the wrangle.
A total of seven companies, including Free Peers, received letters from the music industry threatening them with legal action if they failed to shut down.
The operation has been taken over by a subsiduary of iMesh, itself a distributor of file-sharing software until settling in 2004.
The company reached a $4m (£2.1m) agreement with the music industry and then relaunched itself as a licensed online music service.
It said it had been in talks for some time to acquire the BearShare technology.
A US Supreme Court ruling last year made file-sharing companies that encouraged the theft of copyrighted materials potentially liable.