Estee Lauder took Target Australia to the Federal Court in 2012, alleging that its stores were selling products falsely marked with the MAC branding.
In a settlement reached on Friday, Target has agreed to pay Estee Lauder $1 million for damages, profits, interest and costs.
But the settlement is not an admission of guilt, Target said.
“The testing required to prove if the products were authentic would have been both costly and time-consuming, and so we have taken the commercially prudent decision to settle the matter,” the company said in a statement.
In addition to the $1 million payment, Target has agreed not to import or sell MAC branded goods unless the trademark has been applied by, or with the consent of, MAC Cosmetics.
It will also run advertising in its stores, in its catalogue, and online stating it had not proved its MAC range was not fake.
The settlement is another financial blow to Target, which is owned by the company that also owns Coles, Wesfarmers.
Target’s earnings fell by 44 per cent in the 2012/13 financial year, and in June it announced 260 job losses as part of a restructure to improve its performance.
“The new Target Australia management team remain fully focused on the task of getting the Target business back on track,” the company said on Friday.