File sharing network Kazaa has settled its long running dispute with the record industry with a $100m out of court settlement. 

Under the agreement Kazaa will implement filtering to prevent users distributing copyright protected files.

At its peak, Kazaa had 4.2 million active users worldwide and its software has been downloaded over 239 million times.

"Kazaa was an international engine of copyright theft which damaged the whole music sector," said John Kennedy, chairman and chief executive at anti-piracy group the International Federation of the Phonographic Industry. 

"Kazaa will now be making a transition to a legal model and converting a powerful distribution technology to legitimate use. This is the best possible outcome for the music industry and consumers."

Nikki Hemming, chief executive at Sharman Networks, owners of Kazaa, welcomed the settlement as a "new age of cooperation between the P2P technology and content industries". 

"This settlement ensures that we will be working together with the content providers to the benefit of consumers, businesses and artists," said Hemming.

Mark Mulligan, vice president and research director at Jupiter Research, noted that the $100m settlement is more than half of the value of legitimate European digital music in 2005. 

"Kazaa will be going legitimate which is not, of course, an entirely new avenue for file sharing networks that have fallen on hard times. Napster was a trail blazer for this strategy," Mulligan wrote on the Jupiter Research blog. 

"But what is key here is that the labels are reportedly taking a stake in Kazaa, which illustrates just how important a partner they consider it to be and what sort of aspirations they have."