A Google spokeswoman said: "We are disappointed in the Ninth Circuit's decision and are considering our next steps."
Elizabeth Cabraser, a lawyer for the plaintiffs, said she is pleased with the decision, and "reassured that our courts continue to uphold personal privacy as an important value."
The lawsuit arose soon after the Mountain View, California-based company publicly apologized in May 2010 for having collected fragments of "payload data" from unsecured wireless networks in more than 30 countries.
Google was accused of having collected the data while driving its vehicles through neighborhoods from 2008 to 2010 to collect photos for Street View.
SETTLEMENT WITH STATES
In June 2011, U.S. District Judge James Ware in San Francisco allowed plaintiffs in several consolidated private lawsuits to pursue federal Wiretap Act claims against Google, while dismissing California state law claims.
Upholding that ruling, Bybee said Google's "expansive" view of the Wiretap Act's exceptions would have produced the "absurd" result that the law's protections would depend on whether a recipient of communications was using a secure network.
He said this could, in theory, allow someone to park outside the home or office of a person using an unsecured network, and without penalty use a "packet sniffer," a device that captures data being transmitted over a network, to intercept an email intended for that person because it was readily accessible.
"Surely Congress did not intend to condone such an intrusive and unwarranted invasion of privacy when it enacted the Wiretap Act 'to protect against the unauthorized interception of electronic communications,'" he said.
Eighteen individual plaintiffs are named in the appeal.
In March, Google agreed to pay $7 million to settle a probe into the matter involving 38 U.S. states and the District of Columbia. As part of that settlement, Google agreed to destroy data collected in the United States.
The Electronic Privacy Information Center is a non-profit that in court papers urged the upholding of Ware's ruling.
The case is Google Inc v. Joffe et al, 9th U.S. Circuit Court of Appeals, No. 11-17483.For the latest tech news and reviews, follow Gadgets 360 on X, Facebook, WhatsApp, Threads and Google News. For the latest videos on gadgets and tech, subscribe to our YouTube channel. If you want to know everything about top influencers, follow our in-house Who'sThat360 on Instagram and YouTube.