A federal court on Tuesday overturned the Federal Communications Commission's network-neutrality regulations, dealing a blow to the Obama administration's effort to ensure the openness of the Internet.
The rules were a campaign promise from Obama in 2008 and were the signature achievement of FCC Chairman Julius Genachowski, who stepped down last year.
But the three judge panel of the D.C. Circuit Court of Appeals sided with Verizon's lawsuit, saying the FCC acted outside its authority by enacting the rules.
If the decision stands, it could mean that Internet providers could soon start charging websites like Google, Facebook and Netflix to reach users.
The FCC's net-neutrality rules, formally called the Open Internet Order and adopted in late 2010, bar Internet service providers from blocking websites or from discriminating against any Internet traffic, except for reasonable network management.
Supporters of the rules argue they are critical for maintaining a free Internet. They argue that the Internet should be an open platform where all websites receive equal treatment, whether they are large corporate services or small start-ups.
But Republicans and other critics argue the rules unnecessarily restrict the business decisions of Internet providers.
After the oral argument in September, many observers anticipated that the D.C. Circuit would strike down at least part of the net neutrality order. But the court went even farther than many expected, throwing out both the anti-discrimination and anti-blocking provisions.
The judges concluded that the FCC was inappropriately treating broadband Internet as a "common carrier" service. Traditional phone lines, railroads, airlines and other services are considered common carriers and must offer service to everyone.
But because the FCC chose to classify broadband Internet as an "information service," it lacks the authority to impose common carrier obligations on it, the court ruled.
It will now be up to FCC Chairman Tom Wheeler to decide how to respond to the ruling. In addition to appealing the decision to either the full D.C. Circuit or the Supreme Court, Wheeler could also decide to reclassify broadband as a "telecommunications service."
Although the FCC has limited authority over "information services," it has wide authority over "telecommunications services," including the power to regulate them as common carriers.
But reclassifying Internet service would spark a massive political fight with congressional Republicans, who fear the FCC would be granting itself sweeping power to oversee the Internet.
"I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment," Wheeler said in a statement.
"We will consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans."
The decision was not quite as bad as it could have been for the FCC. Two of the three judges rejected Verizon's argument that the FCC has essentially no power over broadband Internet. The court did not address Verizon's claim that the rules violate its First Amendment free speech rights—an argument that could endanger a host of federal regulations.
Randal Milch, Verizon's general counsel, issued a statement saying the ruling will "not change consumers' ability to access and use the Internet as they do now."
"The court's 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 which provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want," Milch said.
But at the oral argument in September, Verizon attorney Helgi Walker told the judges that if the rules were struck down, the company planned to explore new "commercial arrangements" such as charging websites for faster service.