Karl-Theodor zu Guttenberg, once the most popular figure in Merkel's cabinet, resigned on March 1 after his doctorate was rescinded for plagiarism, earning the aristocrat the nickname "Baron Cut-and-Paste."
Now prosecutors in the southern city of Hof said they had closed their case against Guttenberg, also savaged in the press as "zu Googleberg," after he donated €20,000 ($26,800) to a children's cancer charity.
The practice is relatively common for relatively minor legal infractions.
The 39-year-old was accused of violating copyrights after it emerged that swathes of his doctoral dissertation on constitutional law were lifted directly from other works.
The prosecutor's office said it had received 199 criminal complaints against zu Guttenberg, who is currently living in the United States with his family, but only one came from an author whose work was allegedly stolen.
Prosecutors had pored over the dissertation looking for evidence of plagiarism but concluded that only "23 text passages were found to be copyright violations under criminal law."
"That is why a court and the public prosecutor's office concluded that a payment of €20,000 for a charity organisation would obviate the public interest in a criminal prosecution," it said.
Zu Guttenberg, once seen as the most promising up-and-coming politician in Merkel's conservative alliance, agreed to stop using his doctor title as the scandal emerged early this year.
He is to publish a new memoir entitled "Unsuccessful, For Now" next week amid media speculation about a potential political comeback at the next scheduled general election in 2013.