Companies that hold patents won a legal victory over the U.S. Patent and Trademark Office (USPTO) on Tuesday when a Virginia district court struck down two controversial rules that attempted to streamline the patent process. Critics argued that the new rules, issued in November but stopped by the court from being enacted, limited an inventor’s “flexibility” to file patent applications. As a result, companies would have lost some of their ability to protect patent-pending inventions and ideas.

In his 26-page opinion, U.S. District Judge James Cacheris concluded that the Patent Office rules were “substantive in nature” and thus exceeded the scope of the agency’s rulemaking authority. Currently the Patent Office is permitted to make procedural rule changes only.

“We are disappointed with this court’s decision, which rejects our view that the USPTO has the authority to implement the proposed rules about claims and continuations,” said the agency in a statement. “The USPTO believes that these rules are consistent with existing statutes and will strengthen the U.S. patent system for all stakeholders.” Government officials haven’t yet announced whether they will appeal the decision, a spokesperson from the Patent Office told CFO.com.

The two rules were put in place to cut the vast backlog of patent applications currently piling up on the desks of the 5,000 patent examiners at the USPTO. Indeed, the patent-application backlog has risen 73 percent since 2002, and now stands at 730,000, according to Robin Nazzaro, director of the Natural Resources & Environmental Team at the Government Accountability Office. In her testimony before the House Subcommittee on Courts, the Internet, and Intellectual Property, she said that the GAO expects the backlog to reach 1.3 million applications by 2011, and that USPTO hiring efforts weren’t enough to reduce the backlog any time soon.

But companies and their patent attorneys say the backlog isn’t reason enough to change the rules. The plaintiffs, including SmithKline Beecham (now a unit of Glaxo Group), argued against placing a cap on the number of revisions a company can make to an application before an examiner approves or rejects the invention. Currently there’s no limit on the number of times a patent can be revised, as long as new information isn’t introduced.

The second rule put a limit on the number of claims a company is permitted to list in its patent application. A claim is a description of a key element of an invention, and the number of claims can range from three or four to more than one hundred per patent application. For example, a patent for a sneaker pad that absorbs wetness was filed using only 4 claims, while an antibacterial agent that kills flu germs listed 115 claims.

Companies were primed to fight the claims limit because in some cases fewer claims hurt a company’s chances of presenting an invention’s unique qualities. The restrictions rob patentees of flexibility, says Richard Giunta, a patent attorney at Wolf, Greenfield & Sacks: “It puts them in a box.” He explains that since a patent-application review usually takes a few years — sometimes up to five — companies are keen to rework their original applications to defend their claim against competitors that try to best their ideas.

The Patent Office has two key options going forward, says James Foster, a patent-case litigator at Wolf, Greenfield: it can appeal the decision to the Federal Circuit Court, which will likely yield a decision by the end of the year or soon after, or the office could wait to see what’s included in the patent-reform legislation currently wending its way through Congress.

The House of Representatives has already passed its version of a patent-reform act, which includes a provision that would authorize the Patent Office to make substantive rule changes. The Senate is still debating its patent-reform proposal, but it’s too difficult to predict — especially during a Presidential election year — whether the Senate will cede more rulemaking power to the agency, adds Foster.