Eros owner Kevin Alderman filed the lawsuit against Robert Leatherwood, 19, in 2007 to stop the unauthorized distribution of the company's programs, which enable Second Life members to give their avatar personas genitals and engage in sexual acts online.
Under the settlement accepted Thursday, Leatherwood agreed to not duplicate, exhibit or allocate any items sold by Eros. Leatherwood also must disclose the email addresses of anyone who might have had access to his Second Life persona, Volkov Catteneo.
Court documents show that the settlement does not involve money or any admission of wrongdoing.
Francis Taney, an attorney representing Eros, told Fox News that "the case remains one of the first real-world legal fights involving two Second Life users over their online conduct." The other is a New York case Taney filed on behalf of Eros.
Leatherwood acknowledged that he sold Eros products, but he said the case had been overblown.
"I did it in private," he told Fox News. "I wasn't out to do a huge market thing. I was doing it for a little bit of money."
Leatherwood said he stopped selling Eros products online a year ago and rarely uses Second Life anymore. He said he agreed to settle the case because he lacked the money to hire an attorney.
Despite lacking legal precedent, the case seems to transfer some real-world principles to the online universe, Taney said.
"This is a technology that has to be dealt with by lawyers, by business people, by regular citizens," he added. "I think it fits quite nicely into existing concepts."