July 6 (Reuters) - The Copyright Royalty Board, which sets the rates broadcasters have to pay for copyright licenses, runs afoul of the Constitution, a federal appeals court ruled on Friday.

The U.S. Court of Appeals for the District of Columbia Circuit found that the three-judge board, appointed by the Librarian of Congress, violates the Appointments Clause of the Constitution, which requires officers with significant authority be appointed by the president with Senate confirmation. But the court also found that it could fix the constitutional problem by giving the Librarian of Congress greater ability to fire the judges on the board.

"With such removal power in the Librarian's hands, we are confident that the Judges are 'inferior' rather than 'principal' officers, and that no constitutional problem remains," Judge Stephen Williams wrote for the three-judge panel.

Intercollegiate Broadcasting System Inc, an association of college radio stations that transmit music over the Internet, challenged the rates that the Copyright Royalty Board set for educational and noncommercial webcasters. The organization argued that the judges exercised significant authority with limited supervision and, therefore, qualified as principal officers that must be appointed by the president with Senate confirmation under the Appointments Clause.

The three-judge panel agreed that the judges carry significant authority and that the rates they set could mean life or death for broadcasting companies. "Billions of dollars and the fates of entire industries can ride on the Copyright Royalty Board's decisions," the panel said.

What's more, under the current structure the judges enjoy significant job security. The Librarian of Congress can only remove them for misconduct or neglecting their duties. That independence, the panel concluded, was the constitutional problem. Giving the Librarian of Congress greater power to remove the judges would make them inferior officers that could be appointed by the Librarian.

The panel sent the case back to the board to determine suitable royalty rates.

Fritz Kass, the volunteer CEO of Intercollegiate, said the group was pleased the court found the board unconstitutional and vacated the order requiring college webcasters to pay unreasonably high rates. However, the court should have allowed Congress to change how the judges are appointed instead of attempting to fix the constitutional problem on its own, he added.

The Justice Department, which represented the Copyright Royalty Board, did not immediately respond to a request for comment.

The case is Intercollegiate Broadcasting System Inc v. Copyright Royalty Board et al, U.S. Court of Appeals for the District of Columbia Circuit, No. 11-1083.

For the Intercollegiate Broadcasting System: Christopher Wright of Wiltshire & Grannis.

For the Copyright Royalty Board et al: Scott McIntosh and Tony West of the Justice Department.

(Reporting By Terry Baynes)

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