A federal appeals court in Washington, D.C., today released a ruling that strikes down key provisions of the FCC’s net neutrality rule.

Verizon filed the lawsuit challenging net neutrality in January, 2011. The net neutrality rule, formally known as the FCC’s Open Internet Order (PDF), prohibits broadband providers from blocking any legal content or “unreasonably discriminating” in transmitting “lawful network traffic.” Translated from the legalese, that means your ISP can’t give any one internet traffic source (like RedBox) preference over another (like Netflix).

The gist of today’s ruling (PDF) is that the FCC could make such a regulation if it classified internet service providers as common carriers, like telephone providers. But since they don’t, the FCC is overstepping its bounds (emphasis added):

The Commission … has reasonably interpreted section 706 to empower it to promulgate rules governing broadband providers’ treatment of Internet traffic, and its justification for the specific rules at issue here—that they will preserve and facilitate the “virtuous circle” of innovation that has driven the explosive growth of the Internet—is reasonable and supported by substantial evidence. That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. 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. 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 CEO of advocacy group Free Press said in a statement:

“The compromised Open Internet Order struck down today left much to be desired, but it was a step toward maintaining Internet users’ freedom to go where they wanted, when they wanted, and communicate freely online. Now, just as Verizon promised it would in court, the biggest broadband providers will race to turn the open and vibrant Web into something that looks like cable TV. They’ll establish fast lanes for the few giant companies that can afford to pay exorbitant tolls and reserve the slow lanes for everyone else.”

Delara Derakhshani, policy counsel for Consumers Union, called on lawmakers and FCC Chairman Thomas Wheeler to take action: “The court’s decision strikes a serious blow to a free and open Internet. It leaves consumers at the mercy of a handful of cable and phone providers that can give preferential treatment to the content they profit from. Chairman Wheeler needs to take action quickly to keep the Internet accessible and competitive, and Congress should get in the game.”

As for pending legislation, there is currently a proposed bill in the Senate that would make it illegal for ISPs to throttle streaming video traffic.

In a statement following this morning’s ruling, FCC Chair Thomas Wheeler left open the option for appealing the case to the Supreme Court.

“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,” said Wheeler.

Wheeler, who took over the position in November, has previously expressed his clear endorsement of net neutrality rules.