AVM Computersystems had sought legal sanction to prevent Cybits from making changes to the code that is used in its routers, in particular code covered by the GPL in its popular Fritz!Box product.
According to the Free Software Foundation Europe, this code comes from the Linux kernel and is thus open to modification, provided the changes are made available to anyone to whom the code is then distributed.
AVM filed two actions against Cybits last year, claiming that when people installed Cybits' filtering software on AVM routers, it changed the routers' firmware, and, hence, infringed on AVM's copyright.
The hearing of the case began in June.
A statement from gpl-violations.org, an organisation that tries to ensure compliance with the GPL, said the Regional Court of Berlin had confirmed that users of embedded devices with pre-installed free software had the legal freedom to make, install, run and distribute modifications to this free software.
"I am extremely pleased that the court turned down any request by AVM to control any modification to the GNU GPL licensed components of the Fritz!Box firmware. Enabling and encouraging everyone to innovate based on existing software and products is a key aspect of the Free Software movement," Harald Welte, founder of gpl-violations.org and third party intervener on behalf of Cybits in the dispute, was quoted as saying in a media release.
The court upheld an auxiliary claim by AVM and enjoined Cybits from distributing the software only in case it causes the web interface to display a wrong status of the internet connection and web filtering software.
"But this is a side issue, the important part is: free software gives everybody the right to use, study, share, and improve it. Nobody should be allowed to prevent others from executing those rights," Matthias Kirschner, FSFE's German co-ordinator, said.
Both parties have a month to appeal the verdict.
The Berlin-based AVM manufactures the popular FRITZBox, an all-in-one IPv6-compatible device for use on broadband connections. It is one of the top makers of broadband devices in Europe and the largest in Germany with turnover of â‚¬200 million in fiscal 2010.