The 9th Circuit Court of Appeals, in a 3-0 ruling, rejected a challenge from telecom and broad industry groups to block California's net neutrality law, which aims to protect the open internet.
The panel's decision said since the FCC under former President Donald Trump reclassified internet services as more lightly regulated information services, the commission "no longer has the authority to regulate in the same manner that it had when these services were classified as telecommunications services."
A lower court judge refused to block California's net neutrality law from taking effect after the Justice Department withdrew its separate legal challenge to California's state law in February 2021.
California's 2018 law barred internet service providers from blocking or throttling traffic, or offering paid fast lanes, but it only took effect last year.
The appeals court said, "The stakes in this case are high for the industry and consumers," and noted that without net neutrality rules, internet providers could "open the door for anticompetitive, discriminatory behavior that could disadvantage important segments of society."
The industry groups that sued California included USTelecom, wireless trade association CTIA, and the NCTA - The Internet & Television Association, as well as internet providers including AT&T, Verizon and Comcast. They said in a joint statement Friday they were "disappointed and will review our options. Once again, a piecemeal approach to this issue is untenable and Congress should codify national rules for an open Internet once and for all."
California Attorney General Rob Bonta said the decision "will protect Californians from blocking, throttling, zero-rating, and other anti-competitive practices."
The FCC under former President Barack Obama, a Democrat, had adopted net neutrality rules in 2015. They were overturned in 2017 by the FCC under Trump, a Republican. California's legislature responded by adopting a state law requiring net neutrality in August 2018.
Supporters of net neutrality rules argue that the protections ensure a free and open internet. Broadband and telecoms trade groups contend their legal basis from the pre-internet era was outdated and that they would discourage investment.
FCC Chair Jessica Rosenworcel said Friday that the decision was "good news" and added the FCC needs "once again to make it the law of the land."
Tom Johnson, who served as general counsel of the FCC during the Trump administration, said the decision "creates confusion on whether states can adopt policies that undermine the FCC's decision to repeal net neutrality rules."
"Ultimately, he said, "the Supreme Court will have to address the role of the states in this area."
The FCC remains divided 2-2. Democrats have been unable to launch proceedings to reinstate net neutrality. A Senate committee is set to vote next week on FCC commissioner nominee Gigi Sohn, a Democrat.
John Bergmayer, legal director at Public Knowledge, called the decision "a major victory for internet users in California and nationwide."
(Reporting by David Shepardson; Editing by Hugh Lawson, Leslie Adler and Aurora Ellis)
By David Shepardson