U.S. judges questioned the FCC's authority to punish Comcast Corp for blocking online file-sharing services on Friday in a case that could wind up curbing the regulators' campaign for a free and open Internet.

A three-judge panel appeared unsatisfied with Federal Communications Commission arguments and was probing whether the FCC acted based on established rules or on direct authority from Congress on broadband network management issues.

The case, which may not be decided by the court for several months, could severely hamper the FCC's push to maintain an open and free Internet through a net neutrality rule-making proposal if the judges decide the agency lacks authority.

That could in turn prompt the FCC, which has argued it has broad authority through regulation of the cable and telephone industries, to ask Congress to pass open Internet legislation, which has been waiting in the wings to give the agency cover if needed.

In a packed courtroom of the U.S. Court of Appeals for the District of Columbia Circuit, Judge A. Raymond Randolph told FCC General Counsel Austin Schlick that it appeared the FCC acted based on policy statements that are aspirational, not operational.

It's very difficult to predict what the court will do based on oral argument, but it certainly appears that the judges were troubled by the FCC's order, former FCC General Counsel Sam Feder said.

A lot of regulation -- both present and future -- could go down with this case, said Feder, a partner at Jenner & Block.

FCC Chairman Julius Genachowski said he was confident the agency has the legal authority. Our hope is that there's an outcome that preserves a free and open Internet and accomplishes what we're in this game to do, he said at the Consumer Electronics Show in Las Vegas.

In 2008 under then-Republican Chairman Kevin Martin, the FCC upheld a complaint accusing Comcast of violating the agency's open Internet principles by blocking file-sharing services that distribute video and television shows.

Comcast then challenged the FCC order and asked a federal appeals court to reverse the action, which required the biggest U.S. cable operator to change its management practices.

Paul Galant, an analyst with Concept Capital, said it appears likely the court's ruling will strike down the FCC's move and said even some additional legal or political maneuvering is not guaranteed to succeed.

NETWORK BLOCKING, OR MANAGEMENT?

The FCC is now guided by a set of principles dating back to 2005 and aimed at preventing Internet service providers from interfering with certain network traffic.

Backed by many advocates, the FCC and Genachowski, a Democrat appointed by President Barack Obama, proposed rules in October that would put teeth behind those guidelines.

Obama strongly backed an open Internet, or net neutrality, during the campaign and as a senator.

The FCC may not act on a final net neutrality rule possibly affecting Internet providers Comcast, AT&T Inc and Verizon Communications Inc until spring.

But Comcast and other Internet providers argue they must engage in reasonable network management due to increasing bandwidth-hogging applications used by consumers.

During the oral arguments before the three-judge panel, an attorney for Comcast argued the FCC acted based on a set of nonbinding principles rather than on established rules or direct congressional authority.

All that existed was a policy statement, said Helgi Walker, an attorney representing Comcast, referring to the set of principles opposed to blocking, discriminating or degrading content by Internet providers.

Walker asked the judges to vacate the FCC order and erase the black mark from the company, which has already agreed to comply fully with the FCC requirements to alter its network management practices.

Experts say the FCC could salvage a win even if the judges decide that the FCC process -- not its authority -- was flawed because it could still move forward with its net neutrality proposal by changing its process.

(Additional reporting by Sinead Carew in Las Vegas; editing by Andre Grenon, Gary Hill)

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