Napster, the digital song-swapping service facing a lawsuit by the world's five largest record labels, said yesterday it had formed a research and development pact with online music company Liquid Audio.

"Most people know that Liquid Audio knows a lot about digital rights management," said Hank Barry, Napster chief executive. "But they also know a lot about MP3's - how they work, how they move. We will be looking to share what we've learned with one another."

Mr Barry, an attorney who represented Liquid Audio, emphasised that there are no plans for Napster to use Liquid Audio's technology within its song swapping service. Liquid Audio would provide Napster with consulting services that would help Napster look at MP3 in new ways.

MP3 is a file format that allows the storage of music files on a personal computer in small packets of data. Napster software allows users that are logged onto the internet to see what MP3 files other Napster users have stored in their computers. Using the software, users can search and download songs from other people's computers.

Napster was created by Shawn Fanning, who last year, as a 19-year-old computer student at the University of Michigan, was toying around with the web. His creation has been championed by artists such as Courtney Love and Public Enemy and attacked by Metallica for stealing artists' music.

What is not in doubt is the popularity of Mr Fanning's company. Napster claims its membership has soared to more than 20m users, making it the largest online file sharing community in the world.

A hearing is scheduled in a US federal court in San Francisco tomorrow stemming from a lawsuit filed by the record industry that accuses the company of rampant copyright infringement.

Napster has replied and claimed that the online trading of MP3 music files falls within the parameters of the Audio Home Recording Act of 1992 which permits copying music for personal use.