(CN) - The D.C. Circuit struck down the Federal Communications Commission's net neutrality requirements, opening the door for broadband providers to block sites that compete with favored affiliates.
Under 2010 FCC order In re Preserving the Open Internet, broadband providers were required to treat Internet traffic on all websites the same, and forbidden to give preferential treatment to websites that might, for example, pay for faster bandwidth.
Verizon challenged the order, arguing that "broadband providers are speakers protected by the First Amendment."
"This is so because they possess discretion to provide, for example, differentiated offerings that highlight their own or their partners' content," Verizon's opening brief said. "The order curtails providers' speech without demonstrating any actual problem in need of solution. And the rules take private property without compensation by banning charges for the compelled carriage of edge providers' traffic."
The FCC urged the court to uphold its net neutrality policy, claiming that "the next Google or Facebook might never begin" if the broadband network throttled users' access.
"A service provider could prevent an end user from accessing Netflix, or the New York Times, or even this court's own website, unless the website paid the provider to allow customer access," the FCC told the D.C. Circuit.
In vacating the FCC's order Tuesday, the mostly unanimous appellate panel pointed to the agency's 2002 reclassification of cable modem services as "information services" rather than "telecommunications services," thereby stripping the agency of statutory authority to regulate the activity of that industry.
"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," Judge David Tatel wrote for the court, joined in full by Jude Judith Rogers.
President Bill Clinton appointed both members of the majority to the bench.
President Ronald Reagan nominated the panel's third member, Judge Laurence Silberman, who said the majority should have taken the additional measure of denying the FCC the authority to regulate broadband carriers, even if they had been properly classified as telecommunications providers.
The FCC net neutrality order "essentially provides an economic preference to a politically powerful constituency, a constituency that, as is true of typical rent seekers, wishes protection against market forces," Silberman wrote. "The commission does not have authority to grant such a favor."
Their 63-page majority opinion acknowledges that there is no reason to doubt that broadband providers have ample reason to discriminate against websites that compete with their own services.
For example, Vonage or Skype compete against AT&T and Time Warner's traditional telephone services, and Netflix and Hulu compete against Verizon's video subscription service.
There is also no doubt that broadband providers have the technical ability to block or significantly slow down Internet traffic on specific websites.
Furthermore, Internet users will find it difficult to transfer their service to another provider because most markets are served by only one cable provider, and many users may not understand that service to certain websites is slow because of provider-imposed limits.
"The commission has offered 'a rational connection between the facts found and the choice made' and Verizon has given us no persuasive reason to question that judgment," Tatel wrote.
Nevertheless, the majority deemed "it obvious that the commission would violate the Communications Act were it to regulate broadband providers as common carriers. Given the commission's still-binding decision to classify broadband providers not as providers of 'telecommunications services' but instead as providers of 'information services,' such treatment would run afoul of section 153(51): 'A telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent that it is engaged in providing telecommunications services.'"
The court struck down the FCC's anti-discrimination and anti-blocking rules, but said that the FCC may still mandate disclosure requirements, because disclosure does not actively interfere with the carriers' First Amendment rights.
Verizon emphasized in a statement that the court's decision will breed innovation and more options for consumers.
"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," the company said. "This will not change in light of the court's decision."
This week marks the second time that the FCC has lost its case for net neutrality rules. The prior defeat happened in 2010.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.