Web Music Firm Settles Rival’s Suit Days Before AOL Buyout

Music software developer Nullsoft Inc., which was acquired this week by America Online Inc., settled a $20-million federal copyright infringement suit filed by a Los Angeles rival just days before the buyout deal was closed.

The lawsuit, filed in U.S. District Court in Los Angeles in March, claimed that Nullsoft founder Justin Frankel did not pay to use program code developed by PlayMedia Systems Inc. This code was incorporated in Nullsoft’s popular MP3 software player, WinAmp, according to the complaint.

On Friday, Nullsoft agreed to pay PlayMedia an undisclosed amount to license PlayMedia’s software code and use the word “amp” in WinAmp, said PlayMedia attorney Bruce Van Dalsem. Nullsoft officials could not be reached on Wednesday.

Another defendant, MP3.com Inc., the popular online music company in San Diego, is not paying anything, but has “entered into a business relationship” with PlayMedia as part of the settlement, Van Dalsem said. Neither company would elaborate.

On Tuesday, AOL said it planned to acquire Nullsoft and Internet music company Spinner Networks Inc. for $400 million in stock.

Sedona, Ariz.-based Nullsoft has developed several MP3 tools--both WinAmp and the ShoutCast players--that let consumers download compact disc-quality recordings and stream their own Internet radio shows for free. Analysts say the deal creates an online music powerhouse by merging AOL’s 17 million subscribers with Nullsoft’s 15 million WinAmp users and Spinner’s 1.5 million subscribers.