According to a statement posted Friday on the agency's Web site, Netscape will pay the state of New York $100,000, delete data collected through the application and agree to privacy audits.
"When companies misrepresent how data is collected or saved, we will hold these companies accountable," New York State Attorney General Eliot Spitzer said in a statement.
Spitzer noted that AOL, which did not admit nor deny wrongdoing in the settlement,.
"Netscape again reiterates that the version of software that was reviewed has not been distributed since the fall of 2000 to consumers, and did not adversely impact users," a Netscape representative wrote in an e-mail. "Netscape stands firmly behind its longstanding and ongoing commitment to protecting consumer privacy."
Friday's settlement comes amid heightened concerns over consumer privacy from so-called spyware and adware products, which track the activities of computer users, often with minimal disclosure and sometimes without warning. Spyware has been linked to numerous freeware products, including some popular fileswapping applications that rely on advertising to make money.
At least three groups of Netscape users have sued the company in recent years, alleging that the AOL Time Warner unit's SmartDownload software, which promises to speed Internet file downloads, invaded people's privacy and violated laws prohibiting electronic surveillance by sending their personal information back to the company.