Peer-to-peer music file-sharing service Napster Monday tentatively settled its class-action copyright lawsuit and made another stride toward launching its much anticipated subscription service.

The Redwood City-based company says it has signed a landmark licensing contract with New York, based Harry Fox Agency, a member of the National Music Publishers Association (NMPA). The deal clears the way for payment of songwriters and publishers, a sticking point in the courts.

The agreement also sets the payment standard for any company that wants to offer legitimate music file downloads.

"You can mark this date on your calendar," says Songwriters' Guild of America president and songwriter George David Weiss, "Today, the American music community and the online community together took a giant leap forward. This settlement, which only a few weeks ago seemed a near-impossibility, will hopefully lead to immediate and unprecedented growth in the licensed use of music on the Internet."

The agreement still needs to be approved by U.S. District Judge Marilyn Hall Patel (who imposed the shutdown of Napster's free service), by the plaintiffs in the class action, and by the NMPA Board of Directors.

That may not be such a high hurdle to clear considering that Senate Judiciary Committee Chairman Patrick Leahy (D-VT), Ranking Minority Member of the Senate Judiciary Committee Orrin Hatch (R-UT), and members of the House Judiciary Committee have pressed all sides on some type of settlement.

For its alleged past sins of unauthorized uses of music, Napster agrees to pay music creators and copyright owners $26 million in damages. The company is also shelling out $10 million for future royalties under a payment structure based on the Audio Home Recording Act.

That legislation also gives songwriters and music publishers the rights to royalties in a one-third to two-thirds ratio with copyright owners of sound recordings.

Now payments to the publishing industry are basically double versus previous methods. Traditonally, publishers got somewhere between 7 1/2 to 8 percent for CD or a cassette. The new structure gives songwriters and publishers one-third of the download revenues.

Napster says it will now move forward in its plans to start its new pay-to-download service that was expected by the end of summer but had hit snags in both the technical and legal arenas. That release date is still uncertain, but will be sometime this year according to Napster's new CEO Konrad Hilbers

Earlier this year, Hilbers told a German publication that the new service would reimburse artists, songwriters and labels for downloaded songs. Subscribers are expected to pay about $5 per month.

Currently, Napster is a member of Seattle-based MusicNet, the recording industry's new music download platform, as an official affiliate. The deal gave the company a tentative licensing partnership with Warner Music Group, EMI Recorded Music and BMG Entertainment.