A jury concluded the doctor looking after Jackson ahead of his concert tour was not unfit for his job – and so AEG had not been negligent in hiring him.
Jackson died in 2009 after taking an overdose of a surgical anaesthetic.
Dr Conrad Murray was jailed for four years for involuntary manslaughter for administering the drug.
To reach its verdict, the jury of six men and six women had to go through five key yes-no questions seeking to establish whether AEG was responsible for Murray’s hiring in the first place and concerning his competence for the job.
The jury decided that AEG Live did hire Murray but found that he was not unfit or incompetent for the job.
Delivering the verdict, jury foreman Gregg Barden said: “That doesn’t mean we felt he was ethical.”
The ruling was welcomed by AEG Live, who argued that they hired Murray at the request of Jackson and had no knowledge of the star’s drug dependency.
“I counted Michael Jackson a creative partner and a friend,” said AEG Live executive Randy Phillips, who had testified at the trial.
“We lost one of the world’s greatest musical geniuses, but I am relieved and deeply grateful that the jury recognised that neither I, nor anyone else at AEG Live, played any part in Michael’s tragic death.”
Jackson’s 83-year-old mother Katherine was in court for the verdict, and appeared emotional as it was read out, Reuters news agency reports.
Her lawyer, Kevin Boyle, said the family was “of course.. not happy with the result as it stands now. We will be exploring all options legally and factually and make a decision about anything at a later time.”
In closing arguments, the Jackson lawyers had suggested the damages they were seeking could exceed $1bn – amounts AEG Live had described as “absurd”.
Michael Jackson died on 25 June 2009 at his rented home in Los Angeles where he was rehearsing for a series of worldwide ‘This Is It’ concerts.
It was billed as his comeback tour, coming four years after he had been acquitted in a high-profile child molestation case that took a toll on his reputation and his finances.
The verdict was read out by the court clerk
But the five-month civil case heard about his battles with chronic pain and insomnia and a reliance on powerful painkillers.
He died after Murray administered an overdose of the hospital anaesthetic propofol to help him sleep.
Katherine Jackson and the star’s three children had argued that AEG Live were negligent in failing to properly investigate Murray before hiring him and ignoring signs that the singer was in poor health.
The concert promoters said only Jackson and Murray knew he was taking the drug and they would have pulled the plug on the tour if they had known.
More than 50 witnesses testified during the trial, including Katherine Jackson and the star’s eldest son, Prince.
Murray is due to be released later this month after serving two years in jail.