"Why do you think that the French people would be the only people to want a fascist as leader?" was Mélenchon's response to an opinion poll putting Le Pen in the lead in the first round of the presidential race.
The Paris court on Thursday threw out Le Pen's case, ruling that this was fair comment in political debate.
"If the term 'fascist' can have insulting connotations when used outside of any political context or if accompanied by other demeaning terms, it has, on the other hand, no insulting character when emplyed between political opponents on a political subject," it declared.
Mélenchon could "legitimately make his opinion known ... without transgressing the limits permitted to freedom of expression on the question", its judgement said.
"The whole FN policy of trying to silence journalists and political opponents ... has failed," commented Mélenchon's lawyer, Raquel Garrido. "Madame Le Pen has today been condemned to put up with being called a fascist."
Le Pen's lawyer, Wallerand Saint just, said that she would "obviously" appeal.
"The epithet is so serious that, even in a political context, it has an insulting character," he told the media.
Last week she lost another legal battle with Mélenchon when she was fined 10,000 euros because her party distributed a fake leaflet in his name during a by-election in northern France.