British company Mind Candy is behind the Moshi Monsters site, which allows children to adopt a virtual pet monster.
The site's characters include Lady Goo Goo, a blonde baby wearing sunglasses who appears in "The Moshi Dance," a video that became an online hit after it was posted on YouTube.
Mind Candy had planned to release the song as a single, but the British High Court's ruling bars it from "promoting, advertising, selling, distributing or otherwise making available to the public" any work involving Lady Goo Goo.
Company founder Michael Acton Smith said Friday that the ruling was "a huge disappointment."
The Associated Press contributed to this report.
