The European Court of Justice ruled in favour of the football club to stop independent trader Matthew Reed of Stanford-le-Hope, Essex, selling merchandise using the names 'Arsenal', 'Arsenal Gunners' or the club's crest outside its Highbury stadium.
The Court ruled that trademark owners should be able to prevent the use of trademarks by third parties.
It said trademarks must "play an essential part in the system of competition" and must constitute a guarantee of origin and quality.
"This case is all about the purpose and function of trademarks, especially in the field of merchandising," said Andrew Lykiardopoulos, intellectual property lawyer at law firm Bristows.
"If the court had found for Mr Reed, then not only could there have been a free-for-all for unofficial merchandise sold outside sports grounds, but the implications would have been felt by the merchandising industry as a whole, especially in the pop industry," he said.
Arsenal makes £5m a year from souvenirs and rival Manchester United is estimated to make up to £40m. Clubs are keen to clamp down on unofficial tradesmen selling merchandise, which could also be of a lower quality.
The verdict will also be welcomed by sportswear manufacturers such as Umbro, Nike and Adidas, who feared million-pound sponsorship deals could be undermined if Mr Reed had won his case.
Mr Reed had won the previous stage of the battle at the High Court in London because he had been selling merchandise outside Highbury for 32 years and the club had not registered its name and logos until 1989.
For this reason Tony Willoughby, senior partner with intellectual property law firm Willoughby & Partners described the European court ruling as "a retrograde step and likely to lead to a grave injustice".
Willoughby added: "So long as nobody is deceived into believing that Mr Reed's scarves are products of the football club, I see no reason why he should be stopped."
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