The court, in vacating an FCC Order issued in 2008, said on Tuesday that the FCC had overstepped its authority in demanding that Comcast, the nation's largest cable provider, treat all Internet traffic equally as it flows over the company's network.
The FCC, the court said, "has failed to tie its assertion of ancillary authority over Comcast's Internet service to any 'statutorily mandated responsibility...'"
Net Neutrality has been backed by companies like Google, which fear that network operators like AT&T and Comcast will engage in discriminatory pricing against certain kinds of Internet traffic, like VOIP data or video packets, to insulate their voice and television businesses from competition.
It has also been central to the FCC's recently released National Broadband Plan.
Despite the setback, FCC spokesperson Jen Howard said in a statement that the agency remains "committed to promoting an open Internet and to policies that will bring the enormous benefits of broadband to all Americans," and that it will base these policies on a sound legal foundation.
"Today's court decision invalidated the prior Commission's approach to preserving an open Internet," said Howard. "But the Court in no way disagreed with the importance of preserving a free and open Internet; nor did it close the door to other methods for achieving this important end."
The FCC did not provide further details about how it intends to proceed.
Comcast said it was gratified by the court's decision. "Our primary goal was always to clear our name and reputation," said Sena Fitzmaurice, VP of government communications for the company, in an e-mailed statement. "We have always been focused on serving our customers and delivering the quality open-Internet experience consumers want. Comcast remains committed to the FCC's existing open Internet principles, and we will continue to work constructively with this FCC as it determines how best to increase broadband adoption and preserve an open and vibrant Internet."
In a blog post, Mehan Jayasuriya, a policy analyst for Public Knowledge, said, "The FCC brought this upon itself when it decided to regulate cable broadband Internet under Title I and removed other broadband services (like DSL) from Title II and moved them into Title I."
In 2002, Internet access services were reclassified. They were moved from Title II jurisdiction under the Communications Act, which regulates "common carrier" services like the telephone, to a less well-defined category, Title I.
Other groups that support Net Neutrality decried the decision.
Markham Erickson, executive director for the Open Internet Coalition, said it "creates a dangerous situation, one where the health and openness of the Internet is being held hostage by the behavior of the major telco and cable providers."
S. Derek Turner, research director for Free Press, said the decision reveals that the FCC is powerless to regulate Comcast and urged the agency to take steps to re-establish its legal authority.
Thomas Lenard, president of the Technology Policy Institute, a group opposed to Net Neutrality regulation, called the court's decision correct and said, "...the type of 'network neutrality' regulation at issue is not in the best interest of consumers..."