On July 21, 2008, the Third Circuit released its decision striking down the $550,000 indecency fine imposed by the FCC on CBS for the "wardrobe malfunction" that exposed Janet Jackson's breast for nine-sixteenths of a second during the 2004 Super Bowl Halftime Show. The three-judge panel determined that the Commission's decision was arbitrary and capricious because it failed to provide the requisite notice and reasoned explanation for the agency's departure from its "consistent and entrenched policy of excluding fleeting broadcast material from the scope of actionable indecency." The court vacated the decision and stated that on remand, the FCC could not impose a retroactive monetary forfeiture on CBS but could set forth a new policy and proceed with a non-punitive indecency determination.

While noting that the arbitrary and capricious nature of the FCC's action provided it with a sufficient basis to invalidate CBS's fine, the court also went on to reject, in dicta, the Commission's three theories of CBS's liability: (a) that CBS was liable for the actions of its employees; (b) that compliance with the Commission's indecency regulations is not a duty that broadcasters can delegate to others; and (c) that CBS failed to take sufficient steps to prevent the broadcast of the indecent material.

Judge Rendell wrote separately, concurring in part and dissenting in part. Rendell agreed that the Commission's fine of CBS was arbitrary and capricious, but she noted her disagreement with a portion of the court's dicta and believed that remand was not necessary, as the Commission is free to develop its policy in later cases.

While CBS and its affiliates are likely celebrating the Third Circuit's rebuke of the "wardrobe malfunction" fine, it is uncertain what effect—if any—this decision will have on the Commission's indecency regulatory regime. Until the Supreme Court provides the definitive word on fleeting indecency in Fox (the Second Circuit's fleeting expletive case), the Third Circuit's CBS decision may prove influential in several pending indecency cases. For example, the CBS decision will likely be a topic of debate in the fall oral arguments before the Second Circuit in the consolidated review of the FCC's decision to fine 45 ABC affiliate and owned-and-operated stations in connection with a 2003 episode of "NYPD Blue". There, the Commission found that a scene that included a brief exposure of an adult woman's buttocks was actionably indecent. Similarly, Fox may use CBS to persuade federal trial courts to dismiss the enforcement actions that the agency brought following Fox's refusal to pay indecency fines levied against 13 of its stations in connection with the network's 2003 broadcast of "Married by America", which featured scenes from bachelor and bachelorette parties involving a sexually charged atmosphere and pixilated nudity.

The Third Circuit's decision has provided CBS with the relief it sought and has provided broadcasters and legal scholars with fodder for future constitutional debates. However, given its narrow scope and the Supreme Court's upcoming review of Fox, CBS has not dramatically changed the regulatory treatment of broadcast indecency.