Net neutrality is no more.

On Tuesday, a Washington appeals court ruled that the FCC's net neutrality rules are invalid in an 81-page document that included talk about cat videos on YouTube. To cut to the chase, the court says the FCC simply doesn't have the authority to force Internet Service Providers to act like mere dumb pipes, passing data through their tubes with a blind eye and sans preferential treatment.

Unlike phone companies, broadband providers aren't classified as "common carriers"—and therein lies the root of the appeal court's decision. From the ruling:

"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."

The decision holds tremendous portent for the future of the Internet.

Net neutrality advocates fear that without rules in place, big companies like Netflix, Disney, and ESPN could gain advantage over competitors by paying ISPs to provide preferential treatment to their company's data. For example, YouTube might pay extra so that its videos load faster than Hulu's on the ISP's network.

We've already seen shades of What Could Happen in AT&T's Sponsored Data and Comcast's decision to have the Xfinity TV streaming app for the Xbox 360 not count against Comcast subscribers' data caps.

”We’re disappointed that the court came to this conclusion,” Craig Aaron, president and CEO of digital rights group Free Press, said in a statement. “Its ruling means that Internet users will be pitted against the biggest phone and cable companies—and in the absence of any oversight, these companies can now block and discriminate against their customers’ communications at will.”

The court itself admits that such scenarios are more than mere theoretical concerns:

"In support of its conclusion that broadband providers could and would act to limit Internet openness, the Commission pointed to four prior instances in which they had done just that. These involved a mobile broadband provider blocking online payment services after entering into a contract with a competing service; a mobile broadband provider restricting the availability of competing VoIP and streaming video services; a fixed broadband provider blocking VoIP applications; and, of course, Comcast’s impairment of peer-to-peer file sharing that was the subject of the Comcast Order."

Nevertheless, the lack of common carrier status for ISPs forced the court to strike down the Open Internet Order's anti-blocking and anti-discrimination rules—the very heart of the FCC's net neutrality.

The ruling left part of the FCC's Open Internet Order intact, however—most notably the disclosure rules. Basically, if your ISP provides preferential treatment to certain data, it still has to tell you that it's doing so.

Not dead yet

The staggering decision doesn't mean all hope is lost, however.

"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," FCC chairman Tom Wheeler said in a statement provided to MarketWatch.

IDG News Service's Grant Gross contributed to this report.