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.

The 90 million people watching the Super Bowl, many of them children, heard Justin Timberlake sing, “Gonna have you naked by the end of this song,” as he reached for Jackson’s bustier.

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.”

“Like any agency, the FCC may change its policies without judicial second-guessing,” the court said. “But it cannot change a well-established course of action without supplying notice of and a reasoned explanation for its policy departure.”

The 3rd Circuit judges – Chief Judge Anthony J. Scirica, Judge Marjorie O. Rendell and Judge Julio M. Fuentes – also ruled that the FCC deviated from its long-held approach of applying identical standards to words and images when reviewing complaints of indecency.

“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.”

In a statement Monday, CBS said it hoped the decision “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,” the network said.

The FCC did not immediately respond to a request for comment.

Andrew Jay Schwartzman of the Media Access Project, which filed a friend-of-the-court brief on behalf of a group of TV writers, directors and producers, said the ruling “is an important advance for preserving creative freedom on the air.”

“The court agreed with us: the FCC’s inconsistent and unexplained departure from prior decisions leaves artists and journalists confused as to what is, and is not, permissible,” Schwartzman said in a statement Monday.

The FCC had argued that Jackson’s nudity, albeit fleeting, was graphic and explicit and CBS should have been forewarned. Jackson has said the decision to add a costume reveal – exposing her right breast, which had only a silver sunburst “shield” covering her nipple – came after the final rehearsal.

At the time, broadcasters did not employ a video delay for live events, a policy remedied within a week of the game.In challenging the fine, CBS said that “fleeting, isolated or unintended” images should not automatically be considered indecent.

But the FCC said Jackson and Timberlake were employees of CBS and that the network should have to pay for their “willful” actions, given its lack of oversight.

The $550,000 fine represents the maximum $27,500 levied against each of the network’s 20 owned-and-operated stations.

Shortly after the 2004 Super Bowl, the FCC changed its policy on fleeting indecency following an NBC broadcast of the Golden Globes awards show on which U2 lead singer Bono uttered an unscripted expletive. The FCC said at the time that the “F-word” in any context “inherently has a sexual connotation” and can trigger enforcement.

NBC challenged the decision, but that case has yet to be resolved.

In June 2007, a federal appeals court in New York invalidated the government’s policy on fleeting profanities uttered over the airwaves in a case involving remarks by Cher and Nicole Richie on awards shows carried on Fox stations. The Supreme Court will hear the case this fall.