In a huge win for the free market and limited government, a federal appeals court today put a halt to the Federal Communications Commission’s attempt to exert its authority over the Internet and its power play to regulate the companies who provide access to it.

The decision, issued by the U.S. Court of Appeals for the District of Columbia, centers around the FCC’s efforts to enact “net neutrality,” a policy that would prevent ISPs such as AT&T, Verizon and Comcast from managing the flow of traffic on the Internet by discriminating among content and applications that put a high load on their networks.

The case at hand stemmed from a 2007 FCC complaint by non-profit organizations who alleged that Comcast violated the law when it interfered with its customers’ use of peer-to-peer file sharing networking programs, which drag down Internet speeds. Comcast defended its actions as necessary to manage scarce network capacity, while proponents of net neutrality advocate for the principle of “free and open Internet.” Enter the FCC, which decided to take action to regulate the Internet, much like it regulates other forms of telecommunications.

The problem is that the FCC simply doesn’t have that authority, as the court recognized today.

The FCC argued for an expansive interpretation of its authority by virtue of federal law, which says “The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions.”

The court, though, didn’t buy it. It held:

… [N]otwithstanding the “difficult regulatory problem of rapid technological change” posed by the communications industry, “the allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities over which the statute fails to confer . . .Commission authority.”

That’s good news for Internet users, but it’s also good news for America as a whole.

As Heritage’s James Gattuso wrote last year, the end result of a net neutrality policy would be “a slower and more congested Internet, and more frustration for users. Even worse, investment in expanding the Internet will be chilled, as FCC control of network management makes investment less inviting. The amounts at stake aren’t trivial, with tens of billions invested each year in Internet expansion.”

And as for America? With each passing day, federal agencies promulgate more rules and regulations that amount to a pile of red tape that wind up costing Americans some $1.1 trillion per year, according to a 2005 study by the Small Business Administration.

As the United States struggles to regain its economic footing, the last thing we need is yet another agency to grab more power, create new regulations, and hamper the growth – and speed – of the Internet.