Judge Thomas Gavin's decision issued Tuesday gave the school 20 days to respond to the complaint filed in October by Mike McQueary.
McQueary claims statements by then-university president Graham Spanier after criminal charges were filed against two administrators and Jerry Sandusky in 2011 made him look untruthful.
Gavin says the lawsuit makes sufficient claims of "outrageous conduct" on the part of the school to keep the case alive.
Penn State spokesman Dave La Torre is declining comment, and a message seeking comment from McQueary's lawyer Elliot Strokoff wasn't returned.
Spanier currently faces charges of perjury, obstruction and other offenses, allegations he denies.