“Today’s D.C. Circuit decision creates a dangerous situation, one where the health and openness of the internet is being held hostage by the behavior of the major telco and cable providers,” Erickson said.

Comcast had no immediate comment.

The court case centered on Comcast’s challenge of a 2008 FCC order banning the company from blocking its broadband subscribers from using an online file-sharing technology known as BitTorrent. The commission, at the time headed by Republican Kevin Martin, based its order on a set of net-neutrality principles it adopted in 2005 to prevent broadband providers from becoming online gatekeepers of content flowing over their lines. Those principles have guided the FCC’s enforcement of communications laws on a case-by-case basis.

But Comcast argued that the FCC order was illegal because the agency was seeking to enforce mere policy principles, which don’t have the force of regulations or law. That is one reason Genachowski is now trying to formalize those rules.

The cable company also had argued that the FCC lacks authority to mandate net neutrality because it had deregulated broadband under the Telecommunications Act of 1996, a decision upheld by the Supreme Court in 2005.

The FCC now defines broadband as a lightly regulated information service. That means it is not subject to the obligations that traditional telecommunications services have to share their networks with competitors and treat all traffic equally. But the agency argues that existing law gives it the authority to set rules for information services, including net-neutrality rules.

This most recent court decision rejected that reasoning, concluding that Congress has not given the FCC “untrammeled freedom” to regulate services without explicit legal authority.

With so much at stake, the FCC now has several options. It could ask Congress to give it explicit authority to regulate broadband. Or, it could appeal the decision to the Supreme Court.

But both of those steps could take too long, because the agency “has too many important things they have to do right away,” said Ben Scott, policy director for the public interest group Free Press. Free Press was among the groups that alerted the FCC to Comcast’s behavior after the Associated Press ran tests and reported that the cable company was interfering with attempts by some subscribers to share files online.

The more likely scenario, Scott believes, is that the agency will simply reclassify broadband as a more heavily regulated telecommunications service. And that, ironically, could be the worst-case outcome from the perspective of the phone and cable companies, he noted.

“Comcast swung an ax at the FCC to protest the BitTorrent order,” Scott said. “And they sliced right through the FCC’s arm and plunged the ax into their own back.”

The battle over the FCC’s legal jurisdiction comes amid a larger policy dispute over the merits of net neutrality. Backed by internet companies such as Google and the online calling service Skype, the FCC says rules are needed to prevent phone and cable companies from prioritizing some traffic or degrading or blocking cheaper internet calling services or online video sites that compete with their core businesses. Indeed, BitTorrent can be used to transfer large files such as online video, which could threaten Comcast’s cable TV business.

Net-neutrality opponents lauded the appeals court’s unanimous decision. Jim Harper, director of information policy studies at the Cato Institute, a conservative think tank in Washington, D.C., called the ruling a “turning point in the debate over whether the federal government should regulate internet access services” and said web policy should be determined by “market processes.”