TalkTalk and BT have lost their attempt to challenge the Digital Economy Act (DEA) in the Court of Appeal.
The firms announced they were continuing the challenge in mid-May, after their initial attempts failed when the judge agreed only that they should not have to pay to set up a system for monitoring and enforcing alleged copyright infringers.
The latest setback means the firms are now left with little other recourse than turning to the European Courts, something they could well do having previously argued that the Act is inconsistent with European law.
A spokesperson for BT acknowledged the defeat and said the firms was now considering further action.
"I can confirm that we have been refused permission to appeal the judgment and that we are now considering our position," a spokesperson said.
TalkTalk added it was also considering its position while a spokesperon for the Deparment for Culture, Media and Sport (DCMS) argued the decision underlined the Act has a strong role to play in tackling online piracy.
"We welcome the judge's decision and the court's recognition that measures in the Digital Economy Act are both lawful and proportionate," they said.
"The government remains committed to tackling online piracy and so will set out the next steps for implementation of the Digital Economy Act shortly."
The DEA has been widely criticised since its inception, due to both its content and the fact it was rushed through parliament during the wash-up process before political parties began campaigning in the general election last year.
The United Nations recently criticised the Act for impinging on citizens' human rights by kicking people offline that are accused of engaged in persistent illegal file-sharing.
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