Telecinco claimed YouTube should be liable when copyright infringed material is uploaded by users to the site.
The court rejected Telecinco's claim on the grounds that YouTube offers content owners tools to remove copyright infringing content on the website, meaning it is the copyright owner's and not YouTube's responsibility.
In a blog post, Aaron Ferstman, head of communications for YouTube EMEA, said 24-hours of video is uploaded onto YouTube every minute, and if all internet sites had to screen all uploaded videos, photos and text, many sites including Facebook, MySpace and Twitter would "grind to a halt".
He argued in his post that the law strikes a "careful balance" in protecting copyright owners' interests while allowing platforms like YouTube to operate. He said one of the site's benefits was its ability to give elected officials the opportunity to interact with the public, enabling first-hand reporting from war zones.
Ferstman also highlighted how YouTube helps artists reach wider audiences and drive sales. He said: "We believe that letting websites like YouTube thrive is in the best interest of artists, publishers and consumers who can all benefit from the opportunities offered by hosting platforms."
A spokesman for Google said: "The ruling recognises that YouTube is merely an intermediary content-hosting service and therefore cannot be obliged to pre-screen videos before they are uploaded."
Telecinco has been ordered to pay all legal fees.
The news follows a similar US case in June, brought by MTV-owner Viacom, in which a judge ruled YouTube was not liable for damages if its members uploaded copyright-protected content to the site.