Richard O'Dwyer, 24, was wanted in the United States after he was accused of using his website TVShack to infringe copyright. He allegedly made thousands of pounds from the site, which was shut down by US authorities in 2010.
Mr O'Dwyer's extradition was allowed by the British courts and authorised by Home Secretary Theresa May. His case was one of a number highlighted by opponents of the trans-Atlantic extradition treaty.
But a High Court judge heard yesterday that he signed a "deferred prosecution agreement" agreement with US prosecutors, requiring him to travel to America and hand over compensation to avoid criminal charges. He will also have to undertake not to commit acts of copyright infringement.
Sir John Thomas, President of the Queen's Bench Division, said: "It is a very satisfactory outcome It would be very nice for everyone if this was resolved happily before Christmas."
Mr O'Dwyer is due to travel to America in two weeks' time and his extradition application will return to the High Court in 15 days so it can formally be disposed of.
His mother Julia, who has led the campaign to stop her son's extradition, described her "utter relief" at the "fantastic news" of the deal. She said: "I'm still catching up - the phone keeps ringing. I burst into tears when I read the judge's comments It's not a good time to be going to America, is it, on the run-up to Christmas?" she told the Huffington Post.
She added: "We'll have to book flights. It's going to be panic stations. Obviously, we've got some work to do because we have to go to the US. We are still waiting for all the finer points to be agreed."
Isabella Sankey, Liberty's director of policy, said: "This will be a huge relief for Richard - but how appalling that he had to wait so long for the US authorities to make this decision.
"Case after case shows that our extradition arrangements must be overhauled to allow people who have never left these shores to be dealt with here at home. We need urgent legislation to prevent their torment."
Mr O'Dwyer faced being the first person to be extradited from Britain to America to face charges of copyright infringement and his lawyers argued he was being used as a "guinea pig" by US prosecutors.
The US authorities alleged that O'Dwyer received more than 230,000 US dollars (around £147,000) in advertising revenue since January 2008, until the site was shut down in 2010.
When he was arrested by City of London Police in November 2010, he accepted that he was earning approximately £15,000 per month from online advertisements.
He was also the subject of a petition set up on the campaigns website change.org which has been signed by more than 250,000 people and is supported by Wikipedia founder Jimmy Wales.
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