A federal appeals court has overturned the record $550,000 fine for indecency against CBS Corp. for Janet Jackson's "wardrobe malfunction" at the 2004 Super Bowl.
On Monday, a three-judge panel said the Federal Communications Commission "acted arbitrarily and capriciously" in levying the fine.
The Philadelphia-based court also said the FCC had deviated from its previous standard of excluding fleeting images from fines for indecency.
About 90 million viewers saw a naked female breast for nine-sixteenths of a second during the 2004 Super Bowl half-time show.
Justin Timberlake had just finished singing, "Gonna have you naked by the end of this song," when he reached for Janet Jackson's bustier.
Both stars initially claimed the brief exposure of Jackson's nipple was accidental and Timberlake famously said that it was the result of a "wardrobe malfunction."
However, in hearings before the FCC, Jackson said a last-minute decision was made to add a costume reveal, exposing her right breast with a silver sunburst "shield" covering her nipple.
The incident prompted a crackdown on indecency on TV with President George W. Bush signing a bill that mandated larger fines for indecent broadcasting.
But Monday's court ruling said the FCC was not applying a consistent standard, but reacting to the "shock treatment" of the incident.
"Like any agency, the FCC may change its policies without judicial second-guessing," the judges wrote in their ruling.
"But it cannot change a well-established course of action without supplying notice of and a reasoned explanation for its policy departure."
The FCC had defended its ruling by arguing that Jackson's nudity, albeit fleeting, was graphic and explicit and CBS should have known it would be unacceptable on a show seen by families.
CBS should have better monitored the half-time show to prevent the incident, the FCC argued.
Since 2004, networks have built a delay into live programming to circumvent any further impromptu indecency.
The CBS network had said it would pay the record fine on behalf of 20 of its affiliates, but chose to mount a legal challenge in 2006.
A New York federal appeals court ruled in June that the FCC also cannot give harsh punishments for fleeting profanities. That case involved remarks by Cher and Nicole Richie on awards shows carried on Fox stations.
The Supreme Court will hear the case this fall.
With files from the Associated Press
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