INDIANAPOLIS | The City of Gary can move ahead with a 1999 lawsuit seeking to hold gun manufacturers responsible for the criminal misuse of their products, the Indiana Court of Appeals ruled Monday.

In a unanimous decision, the three-judge panel allowed the city's public nuisance lawsuit to go to trial despite a new federal law intended to shield the firearms industry from most liability claims.

The Protection of Lawful Commerce in Arms Act -- approved by Congress and the president in 2005 -- does not protect gun manufacturers and sellers from liability in cases in which they "knowingly" violated state or federal laws concerning the marketing and sale of their products. The Court of Appeals, citing a 2003 decision by the Indiana Supreme Court, ruled the city can pursue its claim that gun manufacturers intentionally ran afoul of the state's public nuisance law.

"This is not simply suing them because they sell guns," said Brian Siebel, a senior attorney with the Brady Center to Prevent Gun Violence. "This is suing them because they sell guns in a manner that supplies the criminal market."

Gary contends gun manufacturers aided the flow of illegal weapons by selling to distributors and dealers that facilitated "straw purchases" in which a third party, often a friend or relative, purchased handguns on behalf of a convicted felon. The city launched the lawsuit after an undercover investigation in which police officers claiming to be straw purchasers were allowed to buy numerous handguns and ammunition from region gun dealers.

Dozens of cities, including Chicago, filed similar lawsuits in the late 1990s, but only a handful remain alive in the courts. The Brady Center, which helped represent Gary in the suit, called Monday's decision "a landmark ruling with national implications" for pending cases in New York and Washington D.C.

Meanwhile, the firearms industry dismissed the appellate ruling as a minor setback and vowed to continue the court battle.

"Obviously, we're disappointed by the ruling because the City of Gary's lawsuit is precisely the kind of lawsuit that the Protection of Lawful Commerce in Arms Act is intended to stop," said Lawrence Keane, senior vice president and general counsel for the National Shooting Sports Foundation. "I'm confident that we will pursue all appellate remedies available to us to stop this lawsuit."

The gun manufacturers named in the lawsuit, including Beretta U.S.A. Corp., Glock Inc. and Smith & Wesson Corp., could ask for a rehearing from the appellate court or petition for a transfer to the Indiana Supreme Court. Attorneys for the city, meanwhile, will prepare for a trial in Lake County Superior Court.

"We're going to tell the story of the handguns we have at the City of Gary police lockup and the damage that they have caused to individual citizens in the city as well as to the city itself," said Tony Walker, a private attorney representing Gary. "We're going to make the case against both the manufacturers and distributors and the local dealers, who all know that this illegal straw purchasing goes on, and they've put no controls in place to address it."