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A European court on Tuesday ruled that a German law shielding car maker Volkswagen AG from hostile takeovers is illegal, clearing the way for Porsche AG to increase its influence -- and possibly take control -- at Europe's biggest car maker.

The decision by the European Court of Justice also is expected to have wider ramifications across Europe, where many governments have tried to protect companies they see as vital to their economies from takeovers, particularly foreign ones.

German politicians and labor unions had argued that the law was needed to protect local jobs but the court, the EU's highest, said it was illegal. It ruled that the law limited ''the free movement of capital.''

. . . .

The ruling is a triumph for the European Commission, which has fought several battles against European governments and their ''golden shares'' in critical companies.

European Union regulators take their cue from rights enshrined in the EU's founding treaty that proclaim basic economic freedoms such as the right to do business anywhere in the 27-nation bloc.

That right is blocked if governments interfere with companies, the EU executive said.

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