CBS Corp. shouldn’t be held liable for the split-second exposure of singer Janet Jackson’s breast by another performer during the 2004 Super Bowl halftime show, a federal court ruled, tossing out a $550,000 indecency fine.

The U.S. Federal Communications Commission’s policy in determining indecency was “arbitrary and capricious” as applied to CBS, the U.S. Court of Appeals in Philadelphia ruled Monday. The network said viewers got a glimpse of Ms. Jackson’s breast for 9/16ths of a second in what her singing partner, Justin Timberlake, previously called a “wardrobe malfunction.”

“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,” the three-judge panel said.

Lawyers for New York-based CBS argued that the fine should be reversed, because the network had no prior knowledge of the two singers’ intentions. The company is among several that have challenged the FCC’s 30-year-old indecency policy after Congress in 2006 authorized a tenfold increase in fines. Lawyers for CBS said in court arguments that the agency’s zero-tolerance policy has had a “chilling” effect on the broadcast industry.

The network required performers in the halftime show to attend rehearsals and submit scripts, CBS said. There was no way to know that Ms. Jackson and Mr. Timberlake would deviate from the approved performance, according to the company.

“We are gratified by the court’s decision, which we hope will lead the FCC to return to the policy of restrained indecency enforcement,” the network said in a statement. “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.”