As the fifth day of a trial was set to begin, Waymo announced the news in court.
Waymo, which filed the lawsuit that is being heard, contends that Uber's purchase of Otto in August 2016 was part of a plot to collude with former Google engineers to steal the company's trade secrets.
Khosrowshahi expressed "regret" for the company's actions in a statement on Friday.
The surprise settlement announced Friday came as lawyers for Uber and Waymo, a company hatched from Google, prepared to wrap up the first week of a trial that had attracted global attention.
The lawsuit cost Uber precious time in its self-driving auto ambitions, a key to its long-term profitability. Uber can be found liable for trade-secret theft not only if it knew of a theft, but also if it should have known, said Jim Pooley, a trade secrets expert who has followed the case. Google invested in Uber.
In a sudden end to an increasingly bitter public skirmish over self-driving auto trade secrets, Uber settled a lawsuit Friday brought by Waymo, Google's self-driving vehicle company, giving up a stake to its rival.
Following four days of testimony in the trial, which included hours of testimony from former Uber Chief Executive Officer Travis Kalanick, the two companies reached a settlement late Thursday.
In the case, Uber was accused of stealing Waymo trade secrets relating to driverless vehicle hardware, via its acquisition of Otto, a driverless truck startup founded by former Waymo engineer Andrew Levandowski.
In a statement, Uber's CEO Dara Khosrowshahi said the company did "not believe that any trade secrets made their way from Waymo to Uber".
The lawsuits that Uber and Waymo (subsidiary of Google) filed against each other have been one of the most talked about topic of the year 2017 and it seems like we are about to see more action in the current year.
Had the case continued, the losing party likely would have appealed, which could have dragged out for years and may have involved a new trial.
Kalanick appeared subdued in front of jurors, but he returned to his famously pugnacious style in a statement on Friday, saying Uber's sole objective was to hire the most talented scientists and engineers. Through that lens, the acquisition of Otto made good business sense. Google has worked on autonomous cars since 2009 and Uber since 2015. No, sources say. Instead, both Google and Uber insiders offered the same cynical explanation: Google simply wanted to protect its underlying investment in Uber.
Uber wound up firing Levandowski last May after he refused to relinquish his constitutional rights against self-incrimination when questioned about whether he stole trade secrets before leaving Google. For Waymo, showing that what Uber acquired was indeed a trade secret and that it was misappropriated wasn't a slam dunk, which may be why the case ultimately settled.
"Had the trial proceeded to its conclusion, it is clear Uber would have prevailed", Kalanick said.