Associated Newspapers have lost their challenge to an award of £10,000 privacy damages to three of singer Paul Weller's children.
The group claimed that High Court judge Mr Justice Dingemans got it wrong in his application of the law and created what was, in effect, an "image right" for the first time.
This would have far-reaching adverse effects on the freedom of the UK media if allowed to stand, the Court of Appeal heard last month.
The 57-year-old frontman of The Jam and The Style Council brought the case after the unobscured faces of daughter Dylan, 16, and 10-month-old twins John Paul and Bowie were "plastered'' over the MailOnline website.
The Master of the Rolls Lord Dyson, Lord Justice Tomlinson and Lord Justice Bean today dismissed the appeal and refused Associated permission to appeal to the Supreme Court.
Giving the court's ruling, Lord Dyson said that Mr Justice Dingemans was right to hold that the children had a reasonable expectation in the privacy of the photos and that their Article 8 rights which relate to respect for private and family life outweighed Associated's right to freedom of expression.
The seven unpixelated pictures appeared in October 2012 after a paparazzo followed Weller and his children on a shopping trip in Santa Monica, California - taking photos without their consent, despite being asked to stop.
Associated said they were innocuous and inoffensive images taken in public places, and that the Wellers had previously chosen to open up their private family life to public gaze to a significant degree.
But the judge ruled that there was a misuse of private information and a breach of the Data Protection Act which merited an award of £5,000 to Dylan and £2,500 each to the twins.
Lord Dyson said that it was well established in both the domestic and Strasbourg case law that there were some matters about which a person could have a reasonable expectation of privacy notwithstanding that they occur in public.
This was a private family outing and the family element of the activity distinguished it from Naomi Campbell's popping out to the shops for a bottle of milk and Sir Elton John standing with his driver in a London street, outside the gate to his home wearing a baseball cap and tracksuit.
It was also relevant that the children's parents did not consent to the taking or publishing of the photos, he said.
But the critical factor was that they were children and were identified by their surname - the twins were less than one year old at the time of publication.
They did not "knowingly or accidentally" lay themselves open to the possibility of having their photo taken in the context of an activity that was likely to be recorded or reported in a public manner. Nor did their parents court publicity for them.
"The fact that a child's parent or parents are celebrities or public figures may not, without more, be relied on to argue that the child should have a lower reasonable expectation of privacy.
"The child's reasonable expectation of privacy cannot be different from that of a child whose parents are not in the public arena, unless the parents have courted publicity for the child.
"Indeed, the fact that a child's parents are in the public eye means that the child is potentially exposed to a special vulnerability: it could put their safety and security at risk."
He added that children should be protected from the risk of embarrassment and bullying and potentially more serious threats to their safety.