The man dubbed the "accidental millionaire" has been sentenced to four years and seven months in prison while his former partner will serve nine months home detention.
The charges relate to an alleged breach of the exclusion zone around the oil exploration vessel Orient Explorer, which was carrying out a survey of the Raukumara Basin for Brazilian oil giant Petrobras.
Judge Patrick Treston heard three days of prosecution evidence in Tauranga District Court this week before dismissing the charges today.
Defence lawyer Ron Mansfield submitted there was no case to answer because the alleged offending had occurred outside New Zealand's territory.
"There was no jurisdiction to arrest him or charge him with those offences, because they were beyond the 12 nautical miles of New Zealand's territory," he told APNZ. Judge Treston agreed and threw out the charges.
In a statement, Mr Teddy said the Government had been arrogant enough to assume it could bully the protesters when it had no jurisdiction to board the vessel.
"They used the navy, the military, all their police resources and Crown Law to bully us for their big oil friends, but they were found wanting by their own law.
"It shows tiny iwi and indigenous people can take a stand, and can hold the Government to account. I hope Petrobras and the Government have got the message by now that we don't want deep sea oil drilling in the Raukumara Basin."
Te Whanau a Apanui chief executive Rikirangi Gage, whose iwi was behind last year's protest flotilla, has demanded a response from the Government.
"It looks like the navy and police were being used as private security for Petrobras. We want answers from the Government as to why."
Te Whanau a Apanui lawyer Dayle Takitimu said the iwi continued to have and exercise its customary authority, or mana moana, over the Raukumara Basin.
"Deep sea oil exploration and drilling threatens one of the greatest resources that we have all inherited and must pass on to the next generation in better condition that we found it.
"We will, now and forever, stand up against government recklessness if it threatens that environment, and the livelihood of future generations."
Greenpeace senior climate campaigner Simon Boxer welcomed the acquittal after "a year of uncertainty and stress" for Mr Teddy, his family and iwi. The police had no jurisdiction to arrest him but did so anyway, Mr Boxer said.
"Yet again the Government's desire to kowtow to international oil giants has led it to shoot first and ask the hard questions later."
Mr Boxer said the Government was taking reckless risks with New Zealand's economy, coastline and way of life in opening up its waters to deep sea oil drilling.