The Strasbourg, France-based court said David Morris and Helen Steel should have received legal aid from the British government when they were tried for libeling McDonald's in what became widely known as the 'McLibel' case, the longest court case in English history.
The two activists passed out flyers in 1984 that claimed McDonald's was selling unhealthy food, was to blame for starvation in the Third World and was destroying rainforests.
The European Court threw out a British court's 1997 guilty verdict, also saying English law unfairly had put the burden of proof on the defendants to justify every word in the leaflets they distributed but didn't write. The court awarded Morris and Steel damages of 20,000 euros($25,934) and 15,000 euros ($19,451), respectively.
The British government has three months to appeal the decision.
McDonald's U.K. office said the case related to a claim made against the British government, and it was therefore "inappropriate" for the company to comment on the case or its outcome.
"It is important to note, although the so-called 'McLibel' case came to court in 1994, the allegations related to practices in the '80s. The world has moved on since then, and so has McDonald's," the company said.
In London, Morris and Steel said in a statement they hoped the European court's ruling would "result in greater public scrutiny and criticism of powerful organizations whose practices have a detrimental effect on society and the environment.
"The McLibel campaign has already proved that determined and widespread grass-roots protest and defiance can undermine those who try to silence their critics, and also render oppressive laws unworkable," the statement said.
Morris, 50, and Steel, 39, later went back to the spot outside a McDonald's branch in central London where they first handed out the flyers, setting up a banner that read: "Celebrate 20 years of global resistance to McWorld."
"Obviously we are elated. It is a total victory in terms of the ruling," Morris told a crowd of supporters, photographers and journalists.
Steel said the pair had "absolutely no intention of paying (McDonald's) anything."
The much-publicized trial was the longest in English history, lasting 313 court days during which Morris and Steel were refused legal aid and represented themselves with help only from volunteer lawyers.
They told the European court their defense had been hampered by lack of money. The two Londoners had been unemployed or in low-wage jobs, and English courts at the time did not provide lawyers for defendants in libel cases.
The seven-judge panel ruled the activists' rights to adequate defense had been violated in the trial. It also said the trial proceedings infringed on their rights to freedom of expression.
"The denial of legal aid to the applicants had deprived them of the opportunity to present their case effectively before the court and contributed to an unacceptable inequality of arms with McDonald's," the European court said in a statement.
The British trial judge ruled in 1997 that the two had libeled U.S.-based McDonald's by distributing leaflets entitled "What's wrong with McDonald's? Everything they don't want you to know."
The judge ordered them to pay damages totaling 75,000 British pounds ($135,000).
An appeals court upheld much of the original judgment in 1999, but reduced the amount of damages awarded.