Yesterday the two companies agreed to cross-license each other on a royalty- free basis on all products related to lyocell. Courtaulds uses the fibre to make Tencel, a robust, silky material used for suits and other garments.
No compensation has been paid by either side and both companies will now be free to manufacture and sell lyocell anywhere in the world without restriction. The two companies had battled since 1993 in US and European courts over patents both hold on lyocell.
The company described the agreement as "an honourable score draw" that would enable both sides to develop the market for the fibre.
Courtaulds opened a $90m Tencel plant in Alabama in 1992. A further plant opened in the same location in 1996. A Tencel factory in Grimsby is expected to open later this year.
Lyocell is produced from the natural cellulose of woodpulp. Courtaulds says the fabric's qualities include its strength, colour intensity and low shrinkage during cleaning.
Analysts said the settlement was a positive step for both companies and would allow them to concentrate on building a market for what is now a niche product sold mainly by the two companies, dwarfed by the much larger market for acrylic and rayon fibres.
Courtaulds shares rose as much as 3p to 295p in early trading before easing back to 290p.