The drinks company launched its legal proceedings against Sainsbury's in August over Pitcher's, a gin-based drink to which lemonade and fruit can be added.
Sainsbury's is to continue selling the Pitcher's brand, but will add its name to the label and change the colouring from gold to orange. Pitcher's is cheaper than Pimm's and is currently priced at £10.79 for a single 70cl bottle on the Sainsbury's website.
A joint statement released by the two companies said: "Diageo and Sainsbury's are pleased to confirm that the dispute regarding Diageo's Pimm's brand and Sainsbury's Pitchers brand has been amicably settled and the legal proceedings withdrawn.
"Sainsbury's will continue to sell the Pitchers brand, but with a modified label that both parties are happy with. The terms of the settlement are confidential. We are both very pleased with the outcome and look forward to continuing our strong trading relationship"
Pitcher's is described by Sainsbury's marketing material as ‘synonymous with summer'. When the dispute first arose, Diageo said in August: "We can confirm that we have issued legal proceedings against Sainsbury's in relation to an intellectual property matter."
But Sainsbury's dug its heels in and released its own statement, which said: "We intend to vigorously defend ourselves against these allegations. Our customers are savvy enough to know exactly what they're buying, the clue is in the name, and we see no basis for such a claim."