Government bureaucracies aren’t supposed to help big businesses hound their small competitors. But right now a mistake by the Patent and Trademark Office and some aggressive lawyering by the Nordstrom retail chain have plunged a small online retailer into a costly morass. It illustrates the sometimes sharp divide between the law and how the law actually works.

Trademark is the least controversial of the intellectual property doctrines. Unlike patent and copyright, which try to set incentives for the creation of new ideas and expressions, trademark’s roots are in fraud prevention. Trademark prevents confusion about the sources of goods and services by keeping sellers from adopting similar names and insignia. But trademark is just as susceptible to government failure and legal game-playing as other intellectual property doctrines.

Witness the story of Beckons, an organic yoga and lifestyle clothing business founded in 2006 by two women in Colorado. Around the time they began selling their “Beckons” clothing line in July of that year, Ann Sather and Becky Prater filed for a trademark on the word “Beckons” associated with pants, shirts, t‑shirts, shorts, dresses, sweatpants, and jackets. PTO registered their trademark in June 2007. Ann and Becky have been business partners for 20 years, designing and selling clothing lines while raising their children. They each have two children in or nearing college.

After Ann and Becky filed, but before their application was published, the Nordstrom retail chain filed applications for a trademark on the word “Beckon,” planning to use it as a house brand on women’s fashion apparel and accessories. The similarity between the two words and the identity of the product lines would have required the PTO to reject Nordstrom’s application, but it didn’t. Somehow, the examining attorney missed the fact that “Beckons” was already a registered trademark associated with clothing. He approved Nordstrom’s applications for publication.

So instead of continuing to build their business, Ann and Becky found themselves hiring lawyers to file an opposition to Nordstrom’s trademark applications, something they had to do to protect their mark. Because they were first to file and first to use, the law unambiguously gives them the right to their trademarked term “Beckons” and anything similar. But trademark law and trademark practice are two different things.

With 169 stores, a line of restaurants, and its own bank, $2.75 billion Nordstrom, Inc., decided to show Ann and Becky who was boss. Instead of recognizing that the trademark they wanted was taken, Nordstrom’s lawyer moved to cancel Ann and Becky’s trademark. He argued that their Beckons mark only refers to “yoga clothing.” His filing moved the issue to the Trademark Trial and Appeals Board and ramped up the paperwork and legal bills for Ann and Becky.

Only someone who has never set foot in a yoga studio can believe that there is a distinction between yoga clothing and fashion apparel. Yoga gear can be very fashionable, indeed.

The trademark lawyer at PTO, having realized his mistake, asked the TTAB to remand Nordstrom’s applications back to him. The TTAB did that in December 2007, and in May 2008, he denied Nordstrom’s applications for the “Beckon” mark, so similar to Ann and Becky’s “Beckons.”

That should have been the end of it. But Nordstrom had a head of steam going, and it wasn’t going to let two small businesswomen in Colorado get away with “its” trademark. Just 10 days after the PTO attorney rejected the Nordstrom applications, Nordstrom filed a second attack on Ann and Becky’s trademark, arguing that they had abandoned rights in Beckons.

This moved the case back to the TTAB and commenced another round of legal filings. The TTAB dismissed Nordstrom’s second attempt at cancellation as “duplicative,” pointing out to the aggressive lawyer that Nordstrom’s original cancellation attack was still alive.

Today, Nordstrom’s effort to cancel Ann and Beckys trademark is on the TTAB docket on a schedule that will take until at least mid-2010 to resolve. A letter that Becky wrote to Lynne Beresford, the commissioner of trademarks, illustrates how the PTO has utterly failed her and her business partner:

We filed for a trademark so that we could reasonably secure ourselves from someone else using that name. If your office cannot protect us from this, why would we, or anyone, file an application? The law is supposed to be accessible to all people. Just because Nordstrom has money and we do not does not give them the right to use the name for which we have the trademark.… [T]he cost to work through the TTAB will easily exceed $70,000 just to fix the problem The Trademark Office made in the first place. We understand that we must stand behind and police our trademark. How is this possible for a small company to stand up to a behemoth like Nordstrom for $70,000? Your office has ensured our demise.

Trademark law says that Ann and Becky are entitled to triple damages and attorney’s fees for Nordstrom’s use of their mark. But the advice they’ve gotten is that those remedies are rarely awarded in practice.

This division-between law and practice-is something that policymakers should keep in mind when they write supposedly simple rules, or add to existing ones. Rules and regulations can turn into a vortex of litigation because of simple error, through misuse by a vindictive bureaucrat or-in this case-when taken advantage of by a big company with aggressive lawyers. When straightforward laws like trademark are susceptible to doing this kind of damage, new laws and regulations should have to meet the strictest, most searching scrutiny.

Jeers are due to the Patent and Trademark Office for letting a mistake like this blossom into years of litigation for a small company. PTO owes these women a fix. Jeers are also due to Nordstrom for its aggressive, intemperate lawyering. Intentionally or not, it looks like a big company trying to kill off a competitor with regulatory burden rather than competing fairly in the marketplace. Were talking yoga here, and thats not good for Nordstrom’s karma.

Small businesspeople work very hard and take their creations very seriously. “Beckons” was not a name picked at random, obviously. It is a play on the names of the founders, Becky and Ann. They rightly take this struggle for business survival personally. Instead of these two, some people in the Patent and Trademark Office and in Nordstrom’s legal department deserve some financial uncertainty and sleepless nights for a change.