The ruling means that record companies and film studios cannot use court action to coerce broadband providers into policing known piracy websites.
"EU law precludes the imposition of an injunction by a national court which requires an Internet service provider to install a filtering system with a view to preventing the illegal downloading of files," stated the court.
The creative industries have put pressure on ISPs to take action against illegitimate filesharing in recent years. Earlier this month, it was reported that a coalition comprising film studies, publishers and music firms were trying to force BT into blocking torrent site Pirate Bay.
American film company the Motion Picture Association previously won a court victory which forced the telecom company to clamp down on Newzbin2, a similar filesharing website.
Britain's Digital Economy Act and related legislation are expected to be affected by the ruling.