Apple Computer will pay $100 million (€78 million) to Creative Technology to settle all patent litigation over Apple's popular iPod music player.
The agreement gives Apple a licence to use a Creative patent in its music player and other products and settles all legal disputes between the two companies, Apple said.
Shares in Singapore-based Creative surged following the announcement as Creative said it would start making iPod accessories, which could boost profits beyond the 85 cents per share the settlement would add this quarter. Apple shares were little changed.
Apple Chief Executive Steve Jobs said the agreement ends five lawsuits between the companies "and removes the uncertainty and distraction of prolonged litigation."
"Creative is very fortunate to have been granted this early patent," Mr Jobs added.
Creative, the world's second-largest maker of MP3 music players, sued Apple in May alleging the computer maker had infringed a patent on its "Zen" player.
Creative's patent covers the way music tracks are selected on a device using a hierarchy of three or more successive screens. On the iPod, for instance, users can scroll from artists to albums to songs.
Apple in June countersued, while Creative took the case to the US International Trade Commission and sought a permanent cease-and-desist order against Apple.
Apple in one countersuit alleged that Creative had infringed at least three of its patents, including one for editing data using a portable media device.