Seagate has agreed to settle a class action lawsuit by offering customers from the past six years a cash refund or free back-up and recovery software.

The suit was filed by Michael Lazar and Sarah Cho in March 2005 following claims that the actual storage capacity of Seagate's hard drives was seven per cent less than promised.

In particular, the plaintiffs alleged that Seagate mislead consumers by using the decimal definition of 'gigabyte' in which one gigabyte equals one billion bytes.

Computer operating systems calculate hard drive capacity using the binary definition of gigabyte, in which one gigabyte equates to 1,073,741,824 bytes, creating the seven per cent discrepancy.

A hearing has been scheduled in the San Francisco Superior Court to approve the settlement.

The suit states that anyone in the US who purchased a new Seagate hard drive from an authorised Seagate retailer or distributor between 22 March 2001 and 26 September 2007 is entitled to claim on the settlement.

The conditions also extend to those who bought a drive separately as a Seagate product that was not pre-installed and bundled with a personal computer or other electronic device.

Customers who submit a valid claim will receive free back-up and recovery software, or a cash payment equivalent to five per cent of the net amount they paid for the hard drive, excluding taxes or rebates.

Those wishing to make a claim must submit an online claim form for each qualifying drive by 10 March 2008.

Customers seeking the cash payment must have purchased the drive before 1 January 2006 and must submit appropriate documentation or the serial number for each drive.

Seagate said in a statement that it denies any wrongdoing and that the court has made no determinations regarding liability or damages. However, the company added that it is "pleased to have reached a settlement of the litigation".

"Seagate believes that its advertising and other business practices were and are proper in all respects," the statement said.

"However, because of the expense and burden of litigation, Seagate believes that resolving the matter through settlement is in the best interests of Seagate and its customers."

Under the terms of the settlement, Seagate will make certain disclosures regarding the storage capacity of its retail hard disc drives.