BT and TalkTalk have lost their Court of Appeal challenge against Government moves to tackle copyright infringement online.
They asked three appeal judges to overturn a High Court ruling backing controversial measures intended to curb illegal internet file-sharing.
The creative industries estimate the practice is costing them some £400 million a year, especially with regard to films, music and books.
BT and TalkTalk, which are two of the UK's largest internet service providers (ISPs), say the proposed measures are incompatible with EU law.
Their lawyers also argued at an appeal court hearing in January that the measures would result in an invasion of privacy and run up disproportionate costs for ISPs and consumers.
Lady Justice Arden, sitting with Lord Justice Richards and Lord Justice Patten, disagreed and dismissed their appeal.