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Public interest groups and at least one FCC commissioner cheered on Thursday after a federal appeals court threw out part of the agency’s me…

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Public interest groups and at least one FCC commissioner cheered on Thursday after a federal appeals court threw out part of the agency’s media cross-ownership rules that relaxed restrictions on owning a newspaper and TV station in the same market. The ruling was a blow to some of the nation’s largest media companies, including News Corp. (NSDQ: NWS), CBS (NYSE: CBS), Tribune, and Gannett (NYSE: GCI). It was also yet another rebuke for the FCC, which has suffered a strong of legal defeats in recent years.

Although the U.S. Court of Appeals panel in Philadelphia upheld most of the FCC’s 2008 media ownership order, it objected on procedural grounds to the rule relaxing cross-ownership of newspapers and broadcast stations in local markets. The panel said the FCC failed to meet notice and comment requirements mandated by federal law.

The decision was a rejection of former FCC Chairman Kevin Martin’s 2007 effort to soften media ownership restrictions that had been in place for over three decades. It’s the second time the court has stymied the FCC on this issue: in 2004, the court rejected then-Chairman Michael Powell’s media-ownership plan, also designed to relax the rules.

The appeals court left most of the other rules contained in the 2008 order intact, including restrictions on the number of TV and radio stations one company can own in a given market. The panel also admonished the FCC for failing to put enough analysis into a rule designed to promote broadcast ownership by women and minorities.

The FCC’s attempt to relax the local market ownership restrictions has been fiercely opposed by public interest groups such as the Media Access Project and Free Press, both of which praised the decision as a victory for consumers and a defeat for proponents of media consolidation.

“Today’s decision is a sweeping victory for the public interest,” Corie Wright, policy counsel of Free Press, said in a statement. “In rejecting the arguments of the industry and exposing the FCC’s failures, the court wisely concluded that competition in the media – not more concentration – will provide Americans with the local news and information they need and want.”

John Sturm, president of the Newspaper Association of America, an industry trade group which supported easing the restrictions, described the ruling to Bloomberg as “very disappointing.”

But FCC Commissioner Michael Copps, a fierce critic of media consolidation who opposed the 2008 rules, called the decision a “huge victory for the millions of Americans who have gone on record demanding a richer and more diverse media.”

“I am pleased that the 2008 newspaper-broadcast cross-ownership rule, which would have opened the door to more consolidation and less news, has now been returned to the Commission,” Copps said in a statement. “The rule and the process that brought it forth were highly inimical to media democracy.”

The ruling is yet another legal setback for the FCC. Last year, a federal appeals court struck down the agency’s indecency rules only months after another court said it lacked the authority to enforce its net neutrality rules. The FCC must now change the cross-ownership rule as part of its quadrennial review of media ownership if it wishes to contest the court’s decision.

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