'Bud' is not a place in the Czech Republic and so cannot be protected in Austria under a 1976 bilateral treaty signed by the two nations to protect products that have geographic indicators, ruled a Trial Court in Salzburg.
The court also concluded that Bud was not confusingly similar to Budvar's Budweiser Budvar, Budweiser Budbrau or Budweiser trademarks.
A-B described the ruling as a significant victory following a similar ruling in Vienna last February. "This is another noteworthy decision that could continue setting a strong precedent for other cases throughout Europe," it said.
The decision ends a four-year court battle between A-B and Budvar over rights to the Bud trademark in Austria and has paved the way for the US beer giant's unrestricted use of Bud throughout the country.
The dispute, one of around 40 taking place between the two firms around the world, comes as revenge for A-B after Cambodia's Supreme Court ruled last week that Budvar could sell its Budweiser alongside A-B's.
The Austrian ruling, however, also damages the EU's support for geographic indicators after recent challenges to this system by Australia and the US through the World Trade Organisation.
Both parties claimed victory after a WTO ruling on the subject in March. The EU said the WTO upheld its policy of allowing geographic indicators and registered trademarks to co-exist, while the Australian-US alliance hailed the WTO's call for the EU to make its system easier for outside firms to apply.
A-B, whose Budweiser beer was at the centre of the wrangling, also said the WTO settlement concluded that prior trademarks generally supercede later geographic indications.
The brewer has registered Budweiser in 20 of the 25 EU member states and said Europe accounted for 31 per cent of its foreign beer volume.
Budvar has long argued it has the sole right to the Budweiser name because only its beer is made in the town after which the beer is named. A-B, on the other hand, holds the registered trademark for Budweiser in most countries and claims it began production first, arguing this gives it sole rights to the name.
But, the Czech brewer, which is still government property and around 100 times smaller than A-B, has sought to get round the dispute by applying for greater protection from the EU.
Jan Vesely, the head of the Czech Beer and Malt Association, said the Czech government had proposed a series of quality assurance tests in exchange for a ruling that only the Czech Republic's breweries could use the name 'Czech beer'.
The final proposal, he said, detailed these tests on a number of levels: the beer must be brewed in the country; specific varieties of barley, yeast and hops must be used; it must have characteristic brewing procedures, specifically a slow fermentation under a low temperature; and, the final appearance and taste has to correspond to the understood characteristics of Czech beer. Czech beer is distinctive for its dark golden colour and rich, bitter taste.
The Czech Food and Agricultural Inspectorate would verify these specifications. Beer producers in the Czech Republic would be allowed to make other types of beer but would not be able to call them 'Czech beer'.
"If we get this protection we can use it as a marketing instrument for our beer. Wherever the consumer sees the words 'Czech Beer', it will be an assurance of these characteristics," said Vesely.
Budvar has already begun using the idea to its advantage on foreign markets. The company plans to launch its premium Czechvar beer as a draught on the US market in an attempt to side-step the dispute with Anheuser Busch.