BT and TalkTalk have lost their legal challenge on the legality of the Digital Economy Act after the Court of Appeal rejected their case.
The two internet service providers (ISPs) have been locked in a long-running legal battle with the government over the legislation, which was introduced in April 2010, and which they claim is illegal under European law.
The government won the initial case that the two firms brought but they were given the right to take their case to the appeals court after winning the right to have the case re-heard in October.
However, on Tuesday a panel of three judges ruled that the firm's claims were without merit and that the DEA should stand.
TalkTalk said it was disappointed to lose the appeal but said the ruling did provide additional legal clarity. It added that it was now considering its option on whether to continue with its legal challenge.
"We are reviewing this long and complex judgement and considering our options," it said.
"Though we have lost this appeal we will continue fighting to defend our customers' rights against this ill-judged legislation."
BT had not responded to a request for comment from V3 at the time of publication.
Unsurprisingly the decision by the Court of Appeal was welcomed by rights holder groups, with the director general of the British Video Association, Lavinia Carey, arguing the DEA was a vital measure to protect the future income of creative industries.
"The video industry generates the single largest source of returns on investment for film producers and takes the greatest hit in terms of damage inflicted by illicit file-sharing of video content," she said.
"The DEA contains measures that could see members of the public have their internet access blocked if they are found to have downloaded copyrighted material illegally on three separate occasions."
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