US snack food company Frito-Lay, part of US soft drinks giant PepsiCo, has settled its legal dispute with Chicago-based crisp maker Jays Foods over advertisements that claimed Chicago consumers preferred Lay's potato crisps to Jays' crisps.

Frito-Lay declined to give details of the settlement but the company is believed to have agreed not to continue with the line of advertising and to pay Jays' legal fees, the Chicago Tribune reported, citing industry sources.

Last month a Chicago federal judge ruled that the Frito-Lay advertising campaign had been misleading.

"I find Lay's misleading advertisement in identifying Jays potato chips as unflavoured not only unsavoury but totally tasteless," US District Judge Samuel Der-Yeghiayan was quoted by the newspaper as saying.