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," Jobs added. Creative, the world's second-largest maker of MP3 music players, sued Apple in May alleging the Cupertino, California-based 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 U.S. 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.
Jobs said the settlement "resolves all of our differences with Creative."
Apple spokeswoman Katie Cotton said: "We want to move beyond the legal issues and get back to innovating," adding that the cost of litigation could have risen to "tens if not hundreds of millions of dollars."
Creative said it would take part in the "Made for iPod" program and was "very excited about this new market opportunity" for its speaker systems, recently introduced line of earphones and headphones, and a future line-up of X-Fi audio enhancement products.
Apple has more than 70 percent of the U.S. market for digital music players. Apple's latest version of the iPod holds audio, photo and video files and starts at $299. Creative's Zen Vision:M can play audio and video files and lists for about $300, though many retailers offer discounts. Besi
des Apple, Creative competes with Samsung Electronics, which makes the Yepp player, Japan's Sony Corp. and South Korea's Reigncom Ltd., maker of iRiver players.