In a case closely watched by the recording industry, the U.S. Second Circuit Court of Appeals upheld a 2007 jury verdict that Launchcast, a webcasting service run by Yahoo's Launch Media Inc unit, did not give listeners enough control to be an "interactive service" that would require the fees.

The three-judge panel said the service is required only to pay licensing fees set by SoundExchange, a nonprofit that collects royalties on sound recordings. It was the first federal appeals court to decide the issue.

Friday's ruling is a setback for record producers that have struggled with slumping sales as customers increasingly obtain music online or through other means.