A lower court, in a preliminary 2013 ruling, said the NSA program was probably unconstitutional and "almost Orwellian."
But the appellate panel said the case should not proceed because the plaintiffs -- activist Larry Klayman and the parents of an NSA employee killed in Afghanistan -- failed to show they had been targeted for surveillance as part of the program.
"In order to establish his standing to sue, a plaintiff must show he has suffered a 'concrete and particularized' injury," the Washington appeals panel said.
The impact of the decision was not immediately clear.
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In a separate case filed by the American Civil Liberties Union, a different appeals court in New York ruled in May that the NSA program was illegal because it exceeded the scope of what Congress had authorized.
Since that decision, Congress has passed a law aimed at scaling back the NSA program and ending most bulk collection of Americans' records.
The new law shifts responsibility for storing the data to telephone companies, allowing authorities to access the information only with a warrant from a secret counterterror court that identifies a specific person or group of people suspected of terror ties.
Today's ruling sends the case back to US District Judge Richard Leon, who had issued an injunction -- pending the appeal -- to halt the data collection.