The court's decision, in a public hearing, overturned a previous ruling in 2010 which had sentenced the executives to jail. Reasons for Friday's decision will be made public in 60 days.
"We are very happy that the earlier decision was not confirmed, and that the court of appeals recognised the innocence of our colleagues," said Google policy manager Giorgia Abeltino after the ruling was read.
"Our thoughts are with the boy and his family for the difficult moments they have endured."
Four students at a Turin school uploaded a mobile phone clip to Google Video in 2006 showing them bullying the boy. The prosecutors accused Google of negligence, saying the video remained online for two months even though some Web users had already posted comments asking for it to be taken down.
In February 2010, a court gave each of the three Google executives, none of whom were based in Italy, a six-month suspended jail sentence. Google has said the executives had nothing to do with the upload.
Senior vice-president and chief legal officer David Drummond, former Google Italy board member George De Los Reyes and global privacy counsel Peter Fleischer had not faced actual imprisonment as the sentences were suspended.
The complaint was brought by an Italian advocacy group for people with Down's Syndrome, Vivi Down, and the boy's father.
Vivi Down was a plaintiff because it was named by the boys in the video, a lawyer for the group said. The boy had autism, not Down's, as widely reported during the three years of the case.
Google had said it had removed the video immediately after being notified and cooperated with Italian authorities to help identify the bullies and bring them to justice.
It said that, as hosting platforms that do not create their own content, Google Video, YouTube and Facebook cannot be held responsible for content that others upload.
© Thomson Reuters 2012