The file sharing network has been locked in battle with the Recording Industry Association of America (RIAA) and the UK's International Federation of the Phonographic Industry (IFPI) for a number of years. The agreement settles all the outstanding Kazaa suits with the industry.
"This is the best possible outcome for the music industry," said John Kennedy, the chief executive of the IFPI. "Consumers will experience new ways of enjoying music online, with more choice. This is a win-win scenario."
The deal settles cases in the US and in Australia. An Australian court last year ruled that Kazaa, and others, were guilty of authorising copyright infringement. Kazaa owner Sharman Networks, has argued in the past that it was not responsible for its users' copyright infringements.
“This is welcome news for the music community and the legal online music marketplace," said RIAA chief executive Mitch Bainwol. "The winners are fans, artists and labels and everyone else involved in making music, and our partners in the technology community."
Though the case is a landmark victory for the industry, some observers say that it is of more symbolic than practical value. "It's nowhere near as popular as it used to be," Ovum analyst Jonathan Arber told Reuters. "Very few people are thought to be using it anymore because better services came out. In terms of actually reducing piracy, people migrated to other file-sharing networks a long time ago."
The IFPI released a report which detailed the continuing extent of music piracy. It said that its research showed that one in three CDs sold is an unauthorised copy, amounting to a $4.5 billion a year industry.
It also published a list of 10 countries which it said needed to improve their copyright enforcement practices. Three of the countries were in Europe: Spain, Italy and Greece.
"Italy is one of the biggest sources of piracy in Western Europe," said its report. "Organised crime networks are playing an ever-increasing role in the black market trade in music. The government’s recent anti-piracy laws and increased police action may help, but the problem is so big it will need a concerted and continuing campaign to have any effect."
Greece's piracy rate runs at 50%, it claims, while Spain's is an "unacceptably high" 22%.
"It is not a pleasurable task compiling statistic after statistic of doom and gloom for an industry that gives so many so much pleasure," said IFPI chief executive Kennedy in his introduction to the report. "Occasionally we have to remind everyone that we are an industry – one that provides enjoyment, employment, creativity and innovation."
"The settlement with Kazaa, reported as this publication goes to press, shows we should never give up the battle," he said.