The three-judge panel of the 3rd U.S. Circuit Court of Appeals ruled that the Federal Communications Commission "acted arbitrarily and capriciously" in issuing the fine for the fleeting image of nudity.
Jackson's right breast was briefly exposed to almost 90 million TV viewers during the live halftime show in what fellow pop singer Justin Timberlake later called a "wardrobe malfunction."
Timberlake ripped off part of Jackson's bustier at the end of the performance, exposing part of her breast, which had only a silver sunburst "shield" covering her nipple. Lawmakers and regulators were outraged and vowed a crackdown on broadcast indecency.
U.S. television and radio broadcasters are barred from airing obscene material and are limited from broadcasting indecent materials between the hours of 6 a.m. and 10 p.m.
CBS apologized and paid the fine, $27,500 for each of the 20 stations it owns, but said it did not know ahead of time about the stunt and appealed the decision to the court.
"This is an important win for the entire broadcasting industry because it recognizes that there are rare instances, particularly during live programming, when it may not be possible to block unfortunate fleeting material, despite best efforts," the network said in a statement Monday.
The court found that the FCC deviated from its nearly 30-year practice of fining indecent broadcast programming only when it was so "pervasive as to amount to 'shock treatment' for the audience."
"The Commission's determination that CBS's broadcast of a nine-sixteenths of one second glimpse of a bare female breast was actionably indecent evidenced the agency's departure from its prior policy," the court found. "Its orders constituted the announcement of a policy change -- that fleeting images would no longer be excluded from the scope of actionable indecency."
Shortly after the 2004 Super Bowl, the FCC changed its policy on fleeting indecency after an NBC broadcast of the Golden Globes awards show during which U2 lead singer Bono uttered an unscripted expletive. The FCC said at the time use of certain expletives in any context "inherently has a sexual connotation" and can trigger enforcement.
NBC challenged the decision, but that case has yet to be resolved.
