The French court threw out Facebook's appeal after the social media giant argued that only US courts had jurisdiction to hear cases against it.
Instead the court backed the March 2015 ruling which said Facebook's clause forcing all users to agree that any litigation must be based in California, where the site is based, was "abusive."
Facebook is being sued by a French father of three whose account was blocked after he posted a 19th century painting by Gustave Courbet, "The Origin of the World", depicting a woman's genitalia.
The irate teacher filed a complaint in a French court saying the site could not differentiate between pornography and art.
But in a hearing on January 22, Facebook's lawyer Caroline Lyannaz argued that the site did not fall under French jurisdiction as users have to sign a clause agreeing that only a California court can rule in disputes relating to the firm.
The social media giant closed its legal arm "Facebook France" in May 2012, meaning complaints have to be filed in the US.
The teacher's lawyer Stéphane Cottineau hailed the court ruling as a "first victory won by David against Goliath".
"It's hugely significant because this decision creates jurisprudence not just for Facebook but for other social media networks who use their being headquartered abroad, mainly in the United States, to attempt to evade French law," Cottineau told The Local.
"They might be multi-nationals but the court ruling means they are not outside French law. If they set up in France and contract workers here then French law must be applied to them," he added.
The lawyer said this was an "abusive clause" as none of the 30 million Facebook users in France "can ever take recourse to French legal jurisdiction in the event of a dispute."
He now expects a court in France to hear the teacher's case, when it will have to decide whether or not his freedom of expression had been violated when Facebook blocked his account.
Cottineau said he was finally "satisfied" that French courts can now rule over "Facebook's failure to make a difference between art and pornography and the question of freedom of expression on the social network.