WASHINGTON -- In a decision that could reshape consumers' access to entertainment, news and other online content, a federal appeals court Tuesday set aside Federal Communications Commission rules designed to ensure that transmission of all Internet content be treated equally.
The anti-discrimination and anti-blocking rules have barred broadband providers from prioritizing some types of Internet traffic over others.
A three-judge panel said that the FCC has the authority to regulate broadband providers' treatment of Internet traffic. However, the judges concluded that the FCC failed to establish that its regulations don't overreach.
"Even though the commission has general authority to regulate in this arena, it may not impose requirements" that violate statutory mandates, wrote appeals judge David Tatel. The judges said the FCC's rule in effect treated all Internet service providers as common carriers -- transporters of people or goods for the general public on regular routes at set rates. Examples of common carriers include airlines, railroads, trucking companies and utilities.
But the court said the commission itself already had classified broadband providers as exempt from treatment as common carriers, which set up a legal contradiction. The FCC failed to establish that its regulations do not impose common carrier obligations on the Internet companies, the judges ruled in a setback for the Obama administration's goal of Internet openness.
The decision empowers leading Internet providers to decide which Internet services -- such as Netflix (NFLX) movies, YouTube videos, news stories and more -- they would allow to be transmitted to consumers over their networks.
In some cases, Internet providers such as Verizon, AT&T and cable companies can demand that Google (GOOG), for example, pay them to ensure that YouTube videos are accessible to all their consumers, or Google could pay extra to ensure that YouTube videos are delivered faster.
The court said it was aware of concerns expressed by supporters of the FCC policy about what might happen if the rules were overturned.
"For example, a broadband provider like Comcast might limit its end-user subscribers' ability to access the New York Times website if it wanted to spike traffic to its own news website, or it might degrade the quality of the connection to a search website like Bing if a competitor like Google paid for prioritized access," the court said.
Verizon, which filed the case against the FCC, said the decision "will not change consumers' ability to access and use the Internet as they do now."
It said the decision "will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet."
Advocacy groups such as Public Knowledge called the ruling a disappointing loss for Internet users because the court found that the open Internet rules were built on a flawed legal foundation.
FCC Chairman Tom Wheeler said the commission will now consider its options, including an appeal, to ensure that networks on which the Internet depends provide a free and open platform.
Rep. Henry Waxman, the ranking Democrat on the House Energy and Commerce Committee, said the appeals court affirmed "what never should have been in question -- the FCC can protect consumers, innovation, and competition online. ... I look forward to working with the FCC to revise the rules on the books that protect the free and open Internet."
Some experts questioned whether any immediate change will emerge from the ruling.
"There is language in the opinion for the commission to take solace," said Jonathan Zittrain, former chairman of the FCC's open Internet advisory committee. "The FCC chairman has signaled his view that this affirms the commission's ability to go case by case, calling problems as they see them." He said it was telling that stock prices on most affected companies "haven't budged" in light of the decision.
Verizon and Google long ago published their own net neutrality deal that can provide a framework for others in the industry. "That might explain why you don't see anybody gloating or the market moving," Zittrain said.