The Federal Communications Commission was dealt a major blow today when a portion of its net neutrality rules were struck down by the U.S. Court of Appeals for the District of Columbia. The rules are part of the FCC Open Internet Order adopted in 2010 aimed towards protecting consumers, which forbid Internet service providers (ISPs) from blocking services or otherwise denying content providers equal access to the network.

As discussed eariler on our blog, net neutrality is directed to the principal that Internet service providers (ISPs) and governments should treat all data on the Internet equally. The FCC’s 2010 Open Internet Order captured this principle generally, and required ISPs to be transparent in how they handle traffic control and prohibited ISPs from blocking or “unreasonably” discriminating lawful Internet content.

The Court of Appeals today did not find that Order to be grounded on solid legal footing, because the FCC did not declare that ISPs are “common carriers” under Section 706 of the Telecommunications Act of 1996, yet nonetheless imposed similar restrictions that can only apply to common carriers.

As we explain in this opinion, the Commission has established that section 706 of the Telecommunications Act of 1996 vests it with affirmative authority to enact measures encouraging the deployment of broadband infrastructure. The Commission, we further hold, has reasonably interpreted section 706 to empower it to promulgate rules governing broadband providers’ treatment of Internet traffic, and its justification for the specific rules at issue here—that they will preserve and facilitate the “virtuous circle” of innovation that has driven the explosive growth of the Internet—is reasonable and supported by substantial evidence. That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order.

While the case could still be appealed to the Supreme Court, the immediate ramification of today’s holding will mean that “last mile” broadband providers such as Verizon, Comcast, AT&T, and Time Warner will now be able to prioritize certain services over others.  For instance, a provider such as Comcast may now charge companies like Netflix for faster path to consumers, and may even choose to block a service altogether in an attempt to further monopolize the market through vertical integration by only allowing access to its own services, i.e the NBC-Comcast owned Hulu.

For the full opinion –$file/11-1355-1474943.pdf.