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File-sharing site Kazaa will become a legal music download service following a series of high profile legal battles.
The peer-to-peer network has also agreed to pay $100m (£53m) in damages to the record industry.
The announcement follows the release of a music industry report that says more than 20 billion music tracks have been downloaded illegally in the last year.
File sharing and music piracy are key factors in the recent decline in record sales, according to the music business.
"We have won another battle in an ongoing war," said John Kennedy, chairman and CEO of the International Federation of the Phonographic Industries (IFPI). "We move forward with a spring in our step."
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