Move signals a setback to major-label efforts.

Sony BMG has entered a preliminary agreement to settle a class action lawsuit brought against the company here for its use of copy-protection software that allegedly behaves like spyware. The move signals a setback to major-label efforts to control consumer copying of CDs.

Sony BMG on Dec. 28 reached a deal with New York class action attorneys to settle charges that copy-protection software the major label used on its CDs compromised the digital security and privacy of consumers who played the discs in their computers.

The cash value of the settlement, which will include payment of attorneys' fees, has not been fully defined. The settlement still requires judicial approval.

As part of the agreement, consumers who are already named as a party in the suits will be entitled to collect up to $1,000 or a cash refund of $7.50 for each disc purchased, or a credit for three free album downloads depending on which version of Sony's DRM copy protection they purchased. Consumers now opting into the class will be entitled to the $7.50 refund or album credits. Any U.S. consumer who purchased, received or came into possession of a Sony BMG copy-protected CD between Aug. 1, 2003, through Feb. 1, 2006, can be part of the suit.

Additionally, Sony BMG is agreeing to recall all XCP copy-protected titles and to release uninstall software and security patches for computers infected by the digital rights management technology. The company will waive certain provisions in the end-user license agreements the copy-protected discs contain and vow not to collect personal information through XCP, MediaMax and/or any future content-protection software without the express consent of consumers. Sony BMG executives contend that the company has never collected personal information from consumers using copy-protected CDs.

Sony BMG has already suspended the production of all copy-protected discs. As part of the deal, the company formally agrees to cease production of CDs using XCP DRM technology from First 4 Internet or MediaMax DRM from SunnComm.

Sony BMG also agreed to a series of injunctive measures governing any of its CDs manufactured with content-protection software during the next two years. Any copy-protected CD produced within that time frame must not install any software without the express consent of consumers or collect consumer information.

The extent to which Sony BMG ultimately will curb its production and use of copy-protected discs hinges on what happens with attorneys general who are also investigating or have sued the company. The company is already being sued by the Texas attorney general's office for violating state spyware laws, and its copy-protection initiatives are the focus of investigations by the attorneys general in New York and Florida.

The attorneys general could accept the terms of the New York settlement to resolve their investigations.

The class action suit on which the settlement is based was filed Nov. 14 in the U.S. District Court for the Southern District of New York and led by Scott Kamber of Kamber & Associates.

Sony BMG issued a Dec. 29 statement that read, "We look forward to the court approval process."

Additional reporting by Susan Butler in New York.