The ruling, made public on Monday, upheld the judgment of a preliminary court which in 2016 said Facebook had violated copyright laws and was guilty of "parasitic appropriation".
The case, which The Local reported on at the time, relates to an app called Faround, which was created by software developers Business Competence in 2012 and allows users to locate nearby shops, restaurants and other sites along with their comments and ratings on Facebook.
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Facebook launched its own location-finding feature, Nearby, just two months after Faround was added to the Facebook app store.
Milan's civil court of appeal has now confirmed the initial ruling, saying the two applications were identical in "concept and format" with the graphics the only significant difference between the two. Judges ordered Facebook to pay Business Competence's legal costs amounting to €1,750.
The extent of the economic damage the copyright breach caused Business Competence is yet to be clarified. Faround's creators have said the launch of Nearby led to a direct drop in download numbers and a resulting loss of earnings.
Mark Zuckerberg's company lost another case against an Italian firm in February, when Italy's Ministry of Economic Development rejected a copyright complaint from Facebook against Climbook, a website for Italy's climbing community with information and reviews of climbing routes around the world.
The ministry said that it was "highly improbable" that users would get mixed up between the two services.
Facebook is currently embroiled in a data privacy scandal over allegations that users' personal information was shared with political consulting firm Cambridge Analytica for election purposes.
The Italian competition authority Antitrust has opened an investigation into Facebook for "alleged improper commercial practices" by not adequately informing users about data-gathering, after it emerged that as many as 200,000 Italian Facebook users may have been affected.
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