The European Court of Human Rights dismissed the Princess' claim that publication of a photo of her and her husband on holiday in Switzerland in 2002 breached their rights to privacy under the ECHR.
The photo was used with an article discussing the poor health of the Princess' father, Prince Rainer.
German courts had previously banned its publication. But ECHR judges in Strasbourg ruled that it illustrated a subject of "general interest" – a slightly different term than "public interest", which we have become accustomed to.
The judgment noted that the photo was taken in a public place and that Princess Caroline and her husband could not be classed as private individuals.
It said there was a fundamental distinction between reporting facts about private individuals and facts that contributed to a debate about public figures.
The ruling will be noted by the Parliamentary Committee on Privacy and Injunctions, which is examining as striking a blow in favour of freedom of expression.
Equally significant was another decision by the ECHR last week, to overturn an injunction preventing the German tabloid Das Bild publishing articles about an unnamed TV star who had been publicly arrested for possessing drugs at a German beer festival.
The court said the injunction breached the paper's right to freedom of expression on a matter of public interest.
Claas-Hendrik Soehring, head of legal affairs at Axel Springer Verlag AG, said in a statement: 'As a celebrity you cannot on one hand seek public attention – for example when it is about enhancing your career through the media – and then on the other hand, once there are judicial proceedings, seek to have all coverage forbidden."
The cases, taken with Max Mosley's failed attempt to force newspapers to warn people before exposing their private lives, provide some welcome good news for the media.