Critics say the ACTA agreement is undemocratic.
They argue that it was negotiated behind closed doors from 2008 by representatives who were not democratically elected.
The deal has been signed by many big EU trading partners like the US, Canada and Japan, as well as 22 members of the bloc. However it has yet to be ratified by anyone.
Its supporters say a law is needed to standardise measures protecting businesses, including pharmaceutical firms whose products can be pirated.
ACTA also calls on signatories to seize fake goods and punish those behind them to safeguard companies hit by counterfeiting.
Business groups say the European Parliament’s rejection means the EU will now be weakened in free trade negotiations.
One key ACTA aim is to stem the tide of illegal downloads and streaming of illegal copies of films and music online. However critics say the deal fails to distinguish between web users who download illegal files for their own entertainment and those seeking to make a living from it.