ASHINGTON, May 6 - A federal appeals court handed a major setback to Hollywood and the television networks on Friday when it struck down an antipiracy regulation requiring computer and television makers to use new technology that would make it difficult for consumers to copy and distribute digital programs.

The unanimous ruling by the three-judge panel, in an important case at the intersection of intellectual property and technology, was a stinging rebuke for the Federal Communications Commission. The court said the commission exceeded its authority when it approved the rules in 2003.

It was a significant victory for libraries, consumer groups and civil liberties organizations. They had maintained that the regulation, known as the broadcast flag rule, would stifle innovation in technology and make it more difficult for consumers and users of library services to circulate material legitimately.

Although an appeal is possible, lawyers involved in the case said the fight would shift in the near term to Congress, which is already weighing legislation. Hollywood executives and their lobbyists warned that if the rule was not resurrected by Congress, studios and broadcasters would sharply limit the digital programming available over the airwaves, focusing instead on channels limited to cable and satellite services, where they have other means to control what can be copied.

The Supreme Court is expected to issue a ruling soon in another closely watched case involving digital rights and intellectual property, Metro-Goldwyn-Mayer Studios v. Grokster Ltd. In that case, the court is considering whether the online services that enable copyright songs and movies to be shared freely over the Internet can be held liable themselves for copyright infringement.

The rule at issue in Friday's decision would have required manufacturers to install special technology in new computers and televisions that would enable them to recognize a "broadcast flag" - specially embedded computer bits in the programs created by the studios and the networks. The new equipment would then restrict redistribution and reuse of the programs.

For years, the movie studios and television networks urged the commission to adopt the rule, citing the recording industry's experience with companies like Napster and saying restrictions on copying and distributing programs by consumers were essential to the transition from analog to digital television. They maintained that without the imposition of the broadcast flag, shows would be copied and then transmitted limitlessly through the Internet, much the way music is.

But the critics said that the studios and networks were unduly alarmist and that the new rule, which was to have taken effect July 1, would prevent consumers from copying and using programs for legitimate reasons.

Research librarians submitted affidavits in the case contending that the broadcast flag rule would make it impossible to distribute broadcast clips and other research material over the Internet to researchers and students.

Critics also maintained that the commission had overreached and had moved to regulate the Internet more tightly, ridiculing the agency in the aftermath of the rulemaking as the "federal computer commission."

The rule was challenged from the moment it was issued in November 2003. The case was filed last year in the United States Court of Appeals for the District of Columbia, the usual venue for challenging commission rules.

The outcome of the case was signaled during oral arguments in February, when the judges aggressively questioned F.C.C. lawyers about whether the agency had exceeded its authority by setting technical standards having nothing directly to do with broadcasting transmissions.

"You've gone too far," said Judge Harry T. Edwards during the oral arguments, as he pressed a government lawyer to justify how the agency could possibly set standards governing computers and the Internet. "Are washing machines next?"

But the breadth of Judge Edwards's opinion was more than many lawyers had expected.

"In this case, all relevant materials concerning the F.C.C.'s jurisdiction - including the words of the Communications Act of 1934, its legislative history, subsequent legislation, relevant case law, and commission practice - confirm that the F.C.C. has no authority to regulate consumer electronic devices that can be used for receipt of wire or radio communication when those devices are not engaged in the process of radio or wire transmission," Judge Edwards wrote.

"And the agency's strained and implausible interpretations of the definitional provisions of the Communications Act of 1934 do not lend credence to its position. As the Supreme Court has reminded us, Congress 'does not ... hide elephants in mouse holes.' "His opinion, in American Library Association v. Federal Communications Commission, was joined by Judges David B. Sentelle and Judith W. Rogers.

David Fiske, the commission's top spokesman, said that the agency did not have a comment about the decision and that the government had not decided whether it would seek an appeal either to the full Court of Appeals or to the Supreme Court. Some lawyers said it was unlikely that the Supreme Court would consider the matter as the case did not satisfy the criteria for such review.

The broadcast flag rule was adopted at the urging of Michael K. Powell when he was commission chairman. It was supported by Kevin J. Martin, a commissioner at the time who became chairman this year.

In recent weeks each side in the lawsuit has been talking to lawmakers in anticipation of the ruling.

"Without a broadcast flag, consumers may lose access to the very best programming offered on local television," said Edward O. Fritts, chairman and chief executive of the National Association of Broadcasters. "This remedy is designed to protect against unauthorized indiscriminate redistribution of programming over the Internet."

Dan Glickman, president of the Motion Picture Association of America, offered similar warnings. "If the broadcast flag cannot be used, program providers will have to weigh whether the risk of theft is too great over free, off-air broadcasting and could limit such high-quality programming to only cable, satellite and other more secure delivery systems," he said. "It is important to remember that this decision is only about the F.C.C.'s jurisdiction, not the merits of the broadcast flag itself."

But Gigi B. Sohn, president of Public Knowledge, a digital rights advocacy group that led the fight against the broadcast flag rule, warned that intervention by Congress could create a new set of problems for consumers and innovators.

"If Congress starts to go down the road of giving the F.C.C. broad power over new applications and technologies, who knows what comes next?" Ms. Sohn said. "This case is about the future of technology."

Government officials and industry executives report that digital television has slowly been gaining in popularity. Nearly 1,500 stations, or about 90 percent of the total, now broadcast some digital programs. Industry executives project sales this year of about 15 million television sets able to receive digital programs, about half of all sets sold. Indeed, some sets already being sold are equipped for a broadcast flag.

Cable televisions now have the ability to sell digital programs to as many as 90 million homes, and about 300 hours of digital programming is available each day in many markets.

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