NEW YORK (Dow Jones)--Bestfoods (BFO), the maker of Skippy peanut butter, has a sticky First Amendment issue on its hands.

In a ringing endorsement of free speech rights, a federal appeals court panel has thrown out a ruling that forced the daughter of the Skippy cartoon character's creator to remove accusations from her web site that Bestfoods' predecessor stole her father's trademark.

Issuing a stern condemnation of the lower court ruling, the three judge panel of the U.S. Fourth Circuit Court of Appeals said that the prior decision, "a sweeping injunction requiring the wholesale removal of material, " raised procedural and "serious" First Amendment concerns.

Joan Crosby Tibbetts has been in a long-running dispute over the Skippy trademark, arguing over the years that her father's trademark was pirated by a company later acquired by Bestfoods. Tibbetts' father, Percy Crosby, who created the cartoon character in 1923, died in the mid 1960's.

"First Amendment interests are at stake here because Ms. Tibbetts tells her side of the story on the Skippy Web site- how a big corporation worked to steal her father's cartoon trademark and then used the trademark to make a fortune, " the Court went on to say. "This is an admittedly partisan account and one that vexes CPC (now Bestfoods). Yet just because speech is critical of a corporation and its business practices is not a sufficient reason to enjoin the speech."

The decision, and its strong language, was seized by free speech advocates as an important precedent establishing that trademark protections don't necessarily trump First Amendment rights, savored all the more because of the circuit's conservative reputation.

"What the court thought it was doing protecting trademark rights, but it stepped way over bounds in terms of the speech it restricted, " said Rebecca Glenberg, legal director of the American Civil Liberties Union of Virginia, which filed a friend-of-the-court brief in the appeal. "The significance of this case is that it recognizes there are limits to the degree a court can impose sweeping prohibitions on a litigant's First Amendment rights."

Bestfoods, which is reportedly in talks to acquire Campbell Soup Co. (CPB), while it mulls an offer by Unilever NV (UN), has established a right to use the trademark in peanut butter and other food products. The latest case stems from an attempt by Skippy, Inc., run by Tibbetts, to license a Skippy brand "caramel corn with peanuts" in 1986, according to a corporate history of the battle posted on Bestfoods' Web site.

In handing Bestfoods, formerly called CPC International, Inc., a legal victory at the time, U.S. District Judge Richard Williams enjoined Skippy Inc. from using the Skippy mark in food products, and from communicating "in any manner" that it has the right to use Skippy on peanut butter and food products, and that the company doesn't.

So after Tibbetts began posting commentary critical of the "food pirates", and other tidbits on the history of the dispute from her point of view in the late 1990sm CPC went back to court. Last year, the judge again sided with the company, ordering Tibbetts to edit various comments from her Web site.

A lawyer for Bestfoods said Monday that the company hadn't yet seen the decision, but that it continues to maintain that the bulk of the material ordered taken down violated the original 1986 court order and wasn't in violation of Tibbetts' First Amendment rights.

"We certainly are going to try to continue to have the order enforced," said Mitchell Frank, trademark counsel for Bestfoods, noting that the case was remanded to the lower court for further proceedings.

Tibbetts, who received a $25,000 payment in 1977 from Bestfoods related to an agreement concerning use of her father's comic strip in advertising, wasn't immediately available for comment. Her lawyer, Rodney Ray Sweetland, said that despite the "complete repudiation" of Bestfoods' arguments, he expects the company to continue litigation for the indefinite future. In terms of valuations of Bestfoods' assets as it continues exploring merger possibilities, the Skippy mark "is a valuable piece of property," he suggested.

Eventually, he believes, Tibbetts will be able to restore her original content.