MTH Electric Trains had sued Lionel, a century-old brand, accusing it of stealing train designs through a Korean subcontractor.
The dispute focused on patented computer technology that synchronses a train set's sound, smoke and speed.
"We're happy that we've reached a settlement," said Jerry Calabrese, chief executive of Lionel. "It was a long, terrible case."
However, MTH founder Mike Wolf remained bullish and said the settlement is contingent on resolving several outstanding issues.
"It's not over until it's over," Wolf said. "We don't like each other. It's personal. It's been very difficult."
The agreement includes a cash payment from Lionel to MTH and an agreement on future technology uses, but the companies agreed not to reveal details.
The Lionel subcontractor was found guilty in a South Korean court of stealing train designs, and MTH then sued Lionel in the US.
A Michigan jury awarded MTH $38.6 million in damages in 2004, but in 2006 the US 6th Circuit Court of Appeals overturned the verdict and ordered a new trial.
Instead of returning to court, the companies began discussing a settlement.