Universal and other major record labels had sued XM over its Pioneer Inno portable music player, which enabled subscribers to record music on the device for playback later.
Universal Music Group broke away from other record labels and settled a copyright-infringement suit against XM Satellite Radio, the companies said. Terms of the settlement were not disclosed.
Universal, a unit of Paris-based Vivendi, joined other major record labels last year in suing XM over its Pioneer Inno portable music player, which enabled subscribers to record music on the device for playback later. The multiyear deal announced late Monday covers recording capabilities in current and future devices, the companies said in a joint statement.
In deciding to withdraw from the original suit, Universal said XM had agreed to provide "a new and exciting opportunity for music lovers around the world to discover and enjoy our content, while at the same time recognizing the intrinsic value of music to their business and the need to respect the rights of content owners."
"We are pleased to have resolved this situation in an amicable manner," Doug Morris, chairman and chief executive of Universal, said.
XM said the deal recognizes that the company is competing in a market in which consumers have more options than ever for music. "We commend UMG for being the first music company to take this step forward with us and look forward to continuing our discussions with our other partners in the music industry," Nate Davis, president and chief executive of XM, said.
Universal, home to such popular artists as Amy Winehouse, Jay-Z and U2, had joined other labels in claiming that XM's licensing agreement did not give it the right to record, distribute, or reproduce copyrighted music. The record companies argued in the suit filed in New York in May 2006 that the Inno essentially amounted to XM acting like an online store, such as Apple iTunes, that sells music downloads.
XM claimed to have done nothing wrong, and vowed to fight the suit. Legal experts said XM would likely argue that its device was no different than a digital video recorder that enables people to record TV shows and movies for playback later.
The lawsuit asked the court for a permanent injunction to stop the service, and asked for unspecified monetary damages that would be determined in a trial.
XM and its rival Sirius Satellite Radio are seeking approval from federal regulators for a merger. The companies argue that the music distribution business is so diverse and consumers have so many options that it's unlikely the market could support two satellite radio companies. Opponents, however, say the deal would severely stifle competition.