(Please note paragraph 16 contains language that may be offensive to some readers) (Adds comment from FCC chairman)
By Peter Kaplan
WASHINGTON, July 21 (Reuters) - The U.S. government's campaign against television indecency was dealt a blow on Monday when a court overturned a $550,000 fine against CBS Corp (CBS.N) television stations for airing a glimpse of pop singer Janet Jackson's breast during the 2004 Super Bowl broadcast.
The U.S. Court of Appeals for the Third Circuit said the Federal Communications Commission had "arbitrarily and capriciously departed from its prior policy" that exempted fleeting broadcast material from actionable indecency violations.
Jackson's right breast was exposed to almost 90 million TV viewers for a fraction of a second during the live 2004 Super Bowl football halftime show in what fellow pop singer Justin Timberlake later called a "wardrobe malfunction."
Timberlake ripped off part of Jackson's bustier exposing Jackson's breast during the show. Despite the brevity, lawmakers and regulators were outraged and vowed a crackdown on broadcast indecency.
The judges rejected the FCC's argument that the "fleeting" policy had only applied to words, not images.
"Like any agency, the FCC may change its policies without judicial second-guessing. But it cannot change a well- established course of action without supplying notice of and a reasoned explanation for its policy departure," Chief Judge Anthony Scirica wrote for the three-judge panel that heard the case.
CBS said in a statement it hoped the decision by the Philadelphia-based court "will lead the FCC to return to the policy of restrained indecency enforcement it followed for decades."
"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," CBS said in its statement.
FCC Chairman Kevin Martin said he was "surprised by today's decision and disappointed for families and parents."
Martin said the commission had received hundreds of thousands of complaints about the incident and he noted the FCC's five commissioners voted unanimously to impose the fines.
The decision got a sharp rebuke from the Parents Television Council, an indecency watchdog group. It said the ruling "borders on judicial stupidity" and urged lawmakers in Congress to pass a bill to strengthen anti-indecency enforcement.
"If a striptease during the Super Bowl in front of 90 million people, including millions of children, doesn't fit the parameters of broadcast indecency, then what does?" the group asked.
There was no immediate comment from the FCC on Monday's ruling. Under the administration of President George W. Bush, the agency has embarked on a crackdown of indecent content on broadcast TV and radio.
The FCC could seek a review of Monday's decision by the full appeals court. It also could ask the U.S. Supreme Court to hear an appeal. In that case, it would have 90 days to file a petition with the high court.
The Supreme Court is scheduled to decide another case on FCC indecency enforcement during the upcoming term, which begins in October.
That case stemmed from an FCC ruling in March 2006 in which the agency found News Corp's NWSa.N Fox television network violated decency rules when singer Cher blurted "fuck" during the 2002 Billboard Music Awards broadcast and actress Nicole Richie used a variation of that word and "shit" during the 2003 awards.
Martin said Monday's ruling "only highlights the importance of the Supreme Court's consideration of our indecency rules this Fall."
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., when children are likely to be watching. The restrictions do not apply to cable or satellite services.
CBS and cable music network MTV, which produced the Super Bowl halftime show, insisted they did not know in advance about the wardrobe stunt. CBS apologized and paid the fine, $27,500 for each of the 20 stations it owns and later instituted a five-second delay on most of its live events.
The appeals court said CBS could not be held responsible for the incident.
"Moreover, the FCC cannot impose liability on CBS for the acts of Janet Jackson and Justin Timberlake, independent contractors hired for the limited purposes of the Halftime Show ...," Scirica wrote. (Reporting by Peter Kaplan and Karey Wutkowski; Editing by Toni Reinhold and Andre Grenon)