Daniel Smith and a woman identified only as Nicole both were intoxicated when they shared a "spontaneous, unplanned romantic episode" in a van on Nov. 1, 2005, the Court of Appeals ruled in a 71-page decision.
Nicole last month recanted her allegations, though the court said her recantation was not considered in its decision to acquit Smith, The Philippine Daily Inquirer reported.
Smith, who has been held at the U.S. embassy in Manila, was ordered released immediately "unless held for other lawful cause," Associate Justice Monina Arevalo-Zenarosa said.
Smith's acquittal removes an irritant in the implementation of the Philippine-U.S. Visiting Forces Agreement, which was criticized by some who argued the Philippine government should not have surrendered Smith to the U.S. embassy after his conviction, the Inquirer reported.