A federal appeal court handed Comcast Corp. (Nasdaq: CMCSA, CMCSK) a big victory Tuesday, ruling that the Federal Communications Commission (FCC) lacks the authority to impose network neutrality rules and sanctions on the nation's largest cable MSO.

The Commission "has failed to tie its assertion of ancillary authority over Comcast's Internet service to any 'statutorily mandated responsibility,'" the U.S. Court of Appeals for the District Columbia said in a 36-page ruling issued Tuesday.

The ruling essentially vacates a FCC order that called on Comcast to halt what the Commission called "discriminatory" bandwidth management policies by the end of 2008. (See FCC Throttles Comcast.)

And beyond the effect on Comcast, the ruling is viewed as a setback to the FCC and its aim to create enforceable network neutrality rules.

The FCC's Comcast ruling (made via a close 3-2 vote when Kevin Martin served as Commission chairman) was based on claims that Comcast illegally fiddled with some upstream peer-to-peer traffic and, thus, violated the FCC's Internet Policy Statement.

Before the order was handed down, Comcast, which denied "blocking" any Internet applications, had already announced plans to migrate to a "protocol agnostic" platform by the end of 2008. Comcast confirmed it had completed the migration in early 2009. The new system doesn't single out P2P apps, but instead slows down the traffic of some customers temporarily if they are found to be gobbling up more than their fair share of the bandwidth. (See Comcast Getting 'Protocol Agnostic', Comcast Ready to Test New Traffic Cop, and Comcast Goes 'Protocol Agnostic' Everywhere .)

Despite moving to the new system, Comcast appealed the FCC order last summer, arguing that the Commission did not follow "any federal statue, regulation, or precedent." In other words, there was no "'law' to violate," the MSO claimed. (See Comcast Fights FCC Net Neutrality Order .)

Other broadband ISPs have been keeping a close watch on the appeal proceeding, with some fearing privately that the original FCC order could hold jurisdiction over them, too.

Under new chairman Julius Genachowski, the FCC has been moving to turn its Internet policies into enforceable rules. It approved a draft Notice of Proposed Rulemaking (NPRM) on the matter last October, seeking to codify the original Policy Statement issued in 2005 and adding a component that allows consumers to attach "not-harmful" devices to an ISP network. (See FCC Sets Sail on Internet Rulemaking and FCC's Net Neutrality Plan Faces New Attack.)

Officials for Comcast and the FCC were not immediately available for comment Tuesday morning.

UPDATE: Both parties commented in statements issued this afternoon, with the FCC indicating that it may continue to pursue the codification of network neutrality rules.

FCC spokeswoman Jen Howard said, "Today's court decision invalidates the prior Commission's approach to preserving an open Internet. But the Court in no way disagreed with the importance of preserving a free and open Internet; nor did it close the door to other methods for achieving this important end." (See FCC Comment on Comcast v. FCC.)

Comcast, meanwhile, was "gratified" with the decision. "Our primary goal was always to clear our name and reputation," said Comcast VP of government communications Sena Fitzmaurice, noting that the MSO "remains committed to the FCC's existing open Internet principles, and we will continue to work constructively with this FCC as it determines how best to increase broadband adoption and preserve an open and vibrant Internet." (See Comcast: 'Committed' to FCC's Principles.)

Free Press , an advocate of FCC-mandated Internet rules that has long held that Comcast's earlier Internet traffic policies were tantamount to "blocking," said the court's decision leaves the Commission "unable to protect consumers in the broadband marketplace, and unable to implement the National Broadband Plan."

— Jeff Baumgartner, Site Editor, Light Reading Cable