WASHINGTON, D.C. — Grokster Ltd., a leading developer of Internet file-sharing software popular for stealing songs and movies online, agreed Monday to shut down operations to settle a landmark piracy case filed by Hollywood and the music industry, The Associated Press has learned.

The surprise settlement permanently bans Grokster from participating directly or indirectly in the theft of copyrighted files and requires the company to stop giving away its software, according to people familiar with the agreement. They spoke on condition of anonymity because settlement details were to be disclosed to a federal judge later in the day in Los Angeles.

Grokster's Web site was changed to display a message that its file-sharing service was illegal and no longer available. "There are legal services for downloading music and movies," the message said. "This service is not one of them."

The Supreme Court ruled in June the entertainment industry can file piracy lawsuits against technology companies caught encouraging customers to steal music and movies over the Internet. The decision, which gave a green light for the federal case in Los Angeles, significantly weakened lawsuit protections for companies that had blamed illegal behavior on their own customers rather than the technology that made it possible.

The court said Grokster and another firm, Streamcast Networks Inc., can be sued because they deliberately encouraged customers to download copyrighted files illegally so they could build a larger audience and sell more advertising. Writing for the court, Justice David H. Souter said the companies' "unlawful objective is unmistakable."

The court noted as evidence of bad conduct that Grokster and Streamcast made no effort to block illegal downloads, which the companies maintained wasn't possible.