[mkyc]

Surprisingly, the South Butt is not selling butts, so tarnishment is not a serious claim. (Unless, of course, butts are "unsavory" in the jurisdiction - had a sufficiently rude word been used, tarnishment would be likely). In fact, they are selling clothing. So the standard interpretation of trademark blurring is also not quite applicable. Using a parody of a famous brand as your own brand even for commercial purposes is... apparently ok, in many cases.

I think they have a great case for infringement, though. From a reasonable distance (a few feet), I can't tell the difference. Oh, right - the south butt logo is on the left. Except, of course, when the item in question (say, a bag) is lying on the floor. Or maybe I don't care that much to remember details, relying more on crass pattern-recognition.

If you think that the text of a logo has all that much to do with the logo, then you're missing the point of having a logo. A "South Butt" logo could have been made that infringed on pepsi, or on mcdonalds. But we'll see how this goes.