Starwood accused Hilton of stealing documents related to the development of the W brand.

As many analysts believed, Starwood’s sensational lawsuit against Hilton Hotels won’t make it to a courtroom. In a decision filed in federal court yesterday, the two sides agreed to a settlement of the nearly two-year-old suit in which Starwood accused Hilton of stealing trade secrets to launch the since-scuttled Denizen lifestyle hotel brand.

While most terms of the settlement weren’t announced, Hilton will remain under scrutiny by the court to prevent a reoccurrence of the alleged actions. Hilton said it consented to an injunction that includes “certain business restrictions for a period of two years,” which according to some press reports precludes creating a lifestyle or branded boutique brand during that time. Starwood further announced that the settlement requires Hilton to be subject to monitors appointed by the court “to assure the conduct that occurred does not occur again.” And finally, and perhaps most ominously, the court filing indicated a federal grand jury will continue to look into whether Hilton and some of its former executives should face criminal charges.

Hilton CEO Chris Nassetta was humble in commenting on the settlement, saying, “Hilton Worldwide regrets the circumstances surrounding the dispute with Starwood Hotels and Resorts Worldwide and is pleased to bring an end to this prolonged litigation.”

The suit was filed in February 2009 after Hilton told Starwood it found thousands of Starwood’s confidential documents relating to the development of the W brand in the hands of executives Hilton hired away from Starwood. A month later, Hilton announced plans for Denizen, which Starwood claimed was developed using the purloined Starwood documents.

On a bright side for Hilton, the settlement lifts a veil of uncertainty that’s been haunting the brand company. Developers, investors and potential employees should now have greater confidence in the firm’s future. And once all court restrictions are lifted, Hilton should be able to pursue one of its corporate goals of entering the lifestyle lodging space.