More than a year ago, in what would become a bitter trademark battle, McGraw-Hill Cos. sued the Vanguard Group over the use of the Standard and Poor's trademark.

The suit stemmed from Vanguard's plans to offer an exchange-traded-fund-like share class, known as Viper shares, that would be linked to its S&P's 500 Index fund. The case essentially amounted to a debate over whether the Viper share class fell under the licensing agreement Vanguard struck for its mutual funds with McGraw-Hill, S&P's parent company.

In April, a U.S. District Court in Manhattan upheld McGraw-Hill's claims that Vipers were not covered under its existing contract and issued an injunction barring Vanguard from using the S&P's trademark with its Viper shares. Then, late last month, an appeals court sided with McGraw-Hill again, ruling that the share class was distinct from the agreement.

Now Vanguard is expected to scrap that key component of its Viper strategy and continue with its plans to offer the shares in conjunction with other index funds, including one tracking the Wilshire index.

The company did not return several calls seeking comment.

A Product with Little Bite

Regardless of the strategy, Viper shares, short for Vanguard Index Participating Equity Receipt, won't amount to a substantial revenue stream for Vanguard, said Dan Wiener, who publishes a 50,000-circulation newsletter called the Independent Advisor for Vanguard Investors. Developing the share class, he said, is a defensive move to keep assets from flowing into the coffers of other companies.

Vanguard "saw ETFs as a legitimate competitor to their traditional index funds," he said. "If you have investors seeking out a more popular vehicle, well then offer that vehicle. Vanguard's not saying that ETFs are a great product; they're saying that They're eating our lunch and we need to be there.'"

Pundits say the appeals court ruling represents a blow to the fund giant, defacing its stellar reputation and forcing it to redouble its marketing efforts at a time when the industry is suffering.

"Vipers are not dead, but they've certainly been defanged," Wiener said. Now that the firm can't tie them into its flagship product, "the Vanguard Vipers will have much less of a sting in the marketplace."

Some observes say they don't know why Vanguard wasn't more careful about protecting its reputation as it set out to negotiate with McGraw-Hill. Referring to the court fight, Don Dion, a principal at Dion Money Management in Williamstown, Mass., said he is "surprised that Vanguard pushed it so far."

"Vanguard was trying to use someone else's property and they got caught," he said. "It seems that the lawyers, or the people that run Vanguard, should have worked things out behind closed doors and not get into this type of litigation."

Pundits also say not being able to capitalize on a well-known brand - the 500 Index Fund - means Vanguard will have spend as much as a third more to market its Vipers. Dion compares the idea to opening a hamburger stand, but not being able to use McDonald's golden arches to market the business.

Above all, Chris Traulsen, an analyst at fund researcher Morningstar, said that the ruling is a loss for investors, especially those currently using Vanguard products, who could have benefited from shuffling assets into a Viper without suffering tax disadvantages.

"It would have been nice for shareholders to have a ready vehicle for people who wanted to trade in and out rapidly," Traulsen said. "Now, they don't have that."

McGraw-Hill, meanwhile, is crowing over the victory. Michael Privitera, an S&P spokesman, said the ruling "underlined our rights to exploit our intellectual property and at the same time it made a clear distinction between a mutual fund and an ETF."

Vanguard's current licensing agreements with S&P's are still in effect and the company has also struck similar agreements with companies providing other ETFs, such as the SPDR and iShares products.

As for S&P's relationship with Vanguard in the future, Privitera said it's anybody's guess what may happen next. "We think the court settled this difference between us and now we can move forward," he said. "Vanguard has said that it and S&P are like an older married couple who have a squabble and they go on. I don't know if that's the case. I think we'll have to see what happens."

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