Jubilant activists praised the decision which they said was a defense of democratic freedoms at a time when Beijing is ramping up pressure on the self-ruling island.
Thousands of people took to the streets in protest in March 2014 in what became known as the Sunflower Movement, with 200 people occupying the main chamber of parliament for three weeks.
The rallies were triggered by a proposed cross-strait trade pact that critics claimed had been made in secret and would leave export-reliant Taiwan vulnerable to Chinese influence.
"The defendants did not initiate attacks or cause bloody conflicts and it was an expression of democracy," judge Chang Huei-li told the court as she upheld last year's acquittal by a lower court.
She said protesters were reacting to flaws in the legislative process and the failure of lawmakers to reflect public opinion.
"Those who have power should listen to people's voices and promote their welfare," Chang said.
Taipei's district court had ruled the protesters' actions reflected their right to civil disobedience, clearing them on charges of incitement and interfering with public functions.
But state prosecutors appealed the decision, arguing a lack of legal precedent and consensus for using civil disobedience as a justification for breaking the law.
Protest leader Huang Kuo-chang, now a lawmaker, said yesterday's judgment reaffirmed Taiwan's freedoms.
"When lawmakers do not carry out their duties properly, people can stand up and resist and their rights are protected," Huang said after the ruling.
Sunflower leader Chen Wei-ting said Taiwan's transparent legal process was a message to China's President Xi Jinping.
"I want to tell Xi Jinping that even if you can become an 'emperor' and have endless terms, Taiwan is a democratic country," said Chen.
A court spokesman said the acquittals yesterday were final.