A company that allegedly stored digital music files on an internal server has agreed to pay a $1 million settlement to the Recording Industry Association of America, rather than face a copyright-infringement lawsuit.

According to the RIAA, technology consulting firm Integrated Information Systems Inc. was running a dedicated server containing thousands of MP3 files on its network, allowing all employees access to the music. In August, acting on an E-mail tip, the RIAA sent a letter to the Arizona company telling it to deactivate the server and threatening to sue for copyright infringement. Negotiations to settle the case began soon after that, with IIS eventually agreeing to pay a penalty.

Jupiter Research analyst Aram Sinnreich says it isn't clear whether it's against the law for a company to store MP3s on an internal network. "Most activities involving online music are not yet legal or illegal," he says, since they haven't been tested in court or been specifically addressed by the law. But he adds that most companies, if accused of similar violations, would settle out of court anyway to avoid costly legal action.

Sinnreich also says it might behoove some companies to create an auditing process to search their internal systems for potentially infringing files, in order to avoid lawsuits. "They should assess what their actual risk is of being audited and policed, and assess what it would cost them in terms of resources and employee morale," he says. "I would imagine for a lot of small to midsize businesses it just wouldn't be worth the effort, but for larger organizations it could be a good idea."

IIS did not immediately return calls for comment.