It's not really about confusing, it is about the brand.
I've never heard of this 'bad spaniel,' but if I was to every call Jack Daniel's shit, I would definitely make that joke now. How about some shitty Bad Spaniels?
That's not a good thing to be associated with the brand.
Now how that plays out between trademarks or free speach... I have no clue.
But I'd say it's hard to suggest it has potential/harm to them.
Imagine a play on the trademark FORD. Imagine someone released a toy call Fix Or Repair Daily, where you get play fix a toy car. That's a bad association to have with your brand.
...If nothing else, it's near-subliminal advertising for those who actually make the connection. Otherwise, no harm. Or maybe that's the purpose of the case - increase sales by just having their name and product out there (JD), and also mention the other product they have an issue with to encourage dissenters to purchase that product, hence subliminally suggesting drinking the booze, not the poos. That would only apply is legal cost resulting sales. Eh, food for thought.