It is the latest blow in a decades long legal battle for recognition and compensation for the 3,000 Spaniards estimated to have suffered severe birth defects because of the thalidomide drug.
But the pharmaceutical company appealed in November 2014 and that sentence was overturned when judges ruled that the legal time limits to claim for compensation had overrun.
On Wednesday, the Supreme Court upheld the overturning of the sentence, ruling eight against one.
José Riquelme, head of the Association of Thalidomide Victims of Spain (AVITE) described the ruling as a “bitter disappointment”.
"It's a hammer blow but we will continue to fight to the end," he said outside the court on Wednesday.
A video of the victims 'congratulating' the company for not having to payout any compensation had been uploaded to youtube and was again shared on social media following the Supreme Court ruling.
Un aplauso para la justicia española por dejar sin indemnizaciones a los de la Talidomida https://t.co/Ev2ChJp6oc … …— Eterno Primavera (@SiPeroNo1) September 23, 2015
Spain is the only European country that has yet to see its thalidomide victims fully compensated.
Although tens of thousands of babies were affected worldwide until the drug was pulled from use in 1961, in Francoist Spain it continued to be prescribed until well into the mid-1960s and beyond.
To date only 23 Spaniards have received thalidomide compensation from the Spanish government and the victims were only recognised in a 2010 royal decree.
Victims complain that they have been unable to fulfil the criteria needed to prove the link between their own deformities and the drug prescribed to their mothers.
Claims have only been successful to those able to present the bottle of medication taken by their mother more than five decades ago or the doctor's prescription.
Ignacio Martínez, the lawyer representing the victims insisted that the battle for justice will continue and that the next step is to take the case to Spain's highest court - the Constitutional Court and also to the European Court of Human Rights in Strasburg.