FlavaWorks contended its business premises were across town from the home, but the company lost its argument that CocoDorm could not be considered a business because it did not manufacturer a product at the location.
The three-judge panel ruled last week that video images sold over web were created at the residence and had commercial value.
The 11th U.S. Circuit Court of Appeals sent the case back to U.S. District Court Judge Marcia Cooke to weigh constitutional claims.
Cooke earlier cited an 11th Circuit opinion from 2001 that found homes broadcasting online sex were not adult businesses because their product is on cyberspace, but the city of Miami appealed.
The gay male models residing at the CocoDorm were independent contractors of FlavaWorks and, in exchange for $1,200 per month plus free room and board, were expected to engage in sex captured by the webcams located throughout the house.