The 39 firms had brought legal action to fight legislation which would allow generic versions of their patented drugs being made in or imported to South Africa.

They argued such a move would threaten future Aids research.

However, the South African Government argued that it desperately needed cheap medication to help the 4.7 million South Africans infected with HIV or Aids.

Under rules laid down by the World Trade Organisation, governments are allowed to issue compulsory licenses that allow generic drugs to be manufactured, or allow "parallel importation" of cheaper drugs.

But drug companies challenged this in their lawsuit.

However, the case turned into a public relations disaster for the pharmaceutical industry which was accused of putting profit before the lives of millions of people in the developing world.

The firms involved in the court action did not impose any conditions for dropping the case.

Legal costs

However, a spokesman for GlaxoSmithKline said South Africa had made a commitment to respect international law on drugs patents.

During the hearing, which lasted less than a minute, the companies also said they would meet the South African Government's legal costs.

The new settlement could become a blueprint for future relations between pharmaceutical companies and governments in the developing world.

About two thirds of the 40 million HIV positive people in the world are Africans.

President Thabo Mbeki's administration has not yet said whether it will import retroviral drugs, which help prevent HIV turning into Aids.

Mr Mbeki has caused controversy in the past by insisting the HIV virus is not the primary cause of Aids - a view which runs contrary to mainstream medical opinion.

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