The Supreme Court said, though, that courts in Germany should only grant rights holders an injunction that requires ISPs to block access to infringing sites if the rights holders have first made all "reasonable efforts" to get website operators and hosting providers to remove the infringing content.
Only if those efforts fail or lack "any prospect of success" would there be such a "legal void" to justify forcing ISPs to take action, the Supreme Court said.
"Operators and host providers are much closer to the infringement as the one who provides access to the internet only in general terms," a statement issued by the Supreme Court said.
The fact that blocking measures might technically be circumvented by internet users does not preclude an injunction that requires ISPs to put in place those blocking measures, so long as those measures make it "more difficult at least" for those users to access the infringing content, the court said.
Munich-based technology law expert Marc L. Holtorf of Pinsent Masons, the law firm behind Out-Law.com, said: "This ground-breaking judgment establishes a liability for access providers as last resort. However, rights holders will need to engage in a number of processes before that liability can be established and a blocking order obtained against an ISP."
The Supreme Court was ruling in two joined cases, one of which involved music rights collecting society GEMA and Deutsche Telekom. GEMA wanted the ISP to block its customers' access to 3dl.am, a website hosted in Armenia that allegedly enables users to download copyright-infringing music files.
The court refused to grant GEMA the injunction it was looking for in the case. However, GEMA welcomed the Supreme Court's ruling.
GEMA said the verdict in the 3dl.am case was not "the foreground issue" the Supreme Court was ruling on and instead said that "of key importance" was the fact that it is now confirmed that obtaining an order forcing ISPs to block access to infringing content online "is fundamentally permissible as a last resort".
Dr Harald Heker, GEMA chief executive, said: "Finally we have legal clarity on the permissibility of blocking access to websites illegally offering copyrighted music works on a massive scale. This is a major step forward in the fight against Internet piracy."
The Supreme Court's judgment has not yet been published. GEMA said it was waiting to see the detail of the ruling "to review exactly which measures" rights holders will need to take before a court will decide if an injunction against an ISP is justifiable.
According to the court's statement, GEMA won an injunction against the operators of the 3dl.am site but could not serve the injunction because the address given for the site operators was incorrect. As GEMA tried to contact the hosting provider for the site but their address was also incorrect. The Supreme Court said, though, that the collecting society "would need to make further reasonable inquiries" to contact the operator and/or site host before looking to take action against Deutsche Telekom.
The Supreme Court suggested that hiring private investigators or requesting that the public prosecutor open an investigation into the infringement would form part of the 'reasonable efforts' rights holders would need to take to identify and take action against operators of copyright infringing websites or their hosting providers.
Whilst UK courts have issued a number of website blocking injunctions to ISPs upon the request of rights holders following the ground-breaking ruling in the Newzbin 2 case in 2011, no such injunctions have been issued against ISPs in Germany.
EU copyright laws state that rights holders can obtain a court order against intermediaries whose services are used for piracy. But the EU's E-Commerce Directive says that ISPs are generally not responsible for the activity of customers and that member states must not put ISPs under any obligation to police illegal activity on its service.
The EU courts have previously examined the competing areas of law, and taken account of further principles of EU law, such as the right to free speech, ISPs' rights to freely conduct business and internet users' rights to privacy and the protection of their personal data.
The Court of Justice of the EU (CJEU) provided some guidance on how those laws and rights should be balanced in a landmark 2011 ruling involving Belgian ISP Scarlet and music royalties collecting society Sabam. It is ultimately up to national courts to take account of that guidance in the cases brought before them.