Nine major publishers dropped their copyright infringement lawsuit against New York University yesterday after NYU acknowleged that large-scale photocopying of books and magazines "may have" violated copyright law and agreed to impose restrictions on the practice by its faculty members.

The publishers, who have been fighting the battle of the Xerox machine at campuses all across the country, hailed the settlement as a reaffirmation of the copyright system and a possible prototype for agreements with other schools.

NYU agreed to enforce on all faculty members a "policy statement" sharply restricting the amount of material that can be reproduced without permission. In the settlement agreement, NYU and eight faculty members who also were sued said they were "troubled that they may have infringed the copyrights of one or more of the publishers."

John Brademas, president of NYU, said the agreement "recognizes that the copyright laws and the restrictions contained in them are designed to promote the creation, publication and use of works of the intellect--interests of vital concern to our faculty, other authors, universities, publishers and the public."

The publishers, including such major houses as Simon and Schuster, Alfred A. Knopf, MacMillan and Random House, admittedly picked NYU, the nation's biggest private university, as a test case against what they saw as a nationwide problem. They charged that the faculty members were directing their students to photocopy large chunks of textbooks, best-sellers, works of poetry and classics, rather than buy the books themselves.

Jon Baumgarten, an attorney for the publishers, said the agreement was "remedial rather than punitive. We are looking for something substantially similar from other universities. If we are wrong in our expectation that this will be taken to heart on other campuses, it may be necessary to take further action."

The guidelines, which NYU cannot change without permission of the publishers, permit professors to copy for their own use in research or lecture preparation limited amounts of material, such as a chapter from a book or a "short essay or short poem."

Teachers are also allowed to make multiple copies for classroom use of prose selections of complete short articles or poems, or excerpts from longer works of up to 1,000 words. The copying may not be repeated from term to term, and is limited to nine instances within a term.

The publishers left standing their suit against a Manhattan copying shop used by NYU students and faculty. No trial date has been set.