LOUISVILLE, Ky. (WDRB) -- A small distillery in eastern Kentucky loses a court fight against the University of Kentucky

It's a follow-up to a story we first told you last month.

The case comes down to who owns the name "Kentucky," and although Kentucky Mist Moonshine may have lost the case, the fight continues.

Kentucky Mist Moonshine is a small but growing business in the mountains of Appalachia.

Its blend of fruit-flavored alcohol has gotten so popular, that owner Colin Fultz began marketing a Kentucky Mist Moonshine clothing line.

“We're growing the brand. That's what we like to say. We're growing the brand,” Fultz told WDRB in June.

But that's when Kentucky Mist brewed up trouble.

The University of Kentucky warned Fultz that it owned the word “Kentucky” on all apparel, and that he must stop using it.

“If ‘Kentucky’ is wrote on your shirt, they won't let you trademark it,” Fultz said.

Fultz sued Big Blue, but on Thursday a federal judge dismissed the case.

District Judge Danny Reeves ruled that UK has sovereign immunity, shielding it from the lawsuit.

“Our lawsuit was just for the judge to say that they shouldn't have the right to own the word "Kentucky." He didn't say ‘yes’ or ‘no’ to that. He just said that they have sovereign immunity," Fultz told WDRB in a phone interview following the ruling.

In a statement, spokesman Jay Blanton says UK is pleased the court "... recognizes the University's sovereign immunity and its interest in protecting its trademark ..."

Now UK is going on the offensive. The university is taking the case to U.S. Patent and Trademark Office.

Kentucky Mist's attorney says “bring it on.” He believes he has the stronger case.

“We haven't found anyone that, at this point, is siding with the University of Kentucky. Trademark law is clearly in our favor,” said Jim Francis.

It will likely take months to schedule a hearing.

Meantime, Fultz says he'll keep selling his clothing with "Kentucky" on the label.

“And that's all we want is the word to be able to be used by anybody that wants to,” he said.

UK says it's willing to work with Kentucky Mist, allowing the distillery to sell t-shirts, while preserving the university's trademarks.

“UK would just make sure that Kentucky Mist's merchandise stays within certain parameters. We have numerous similar arrangements with both large and small businesses,” said Blanton.

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