They are as Australian as Rolf Harris, although until a few years ago ugg boots were regarded as dowdy and worn only in the privacy of people's homes. Then celebrities such as Gwyneth Paltrow became fans, sales rocketed and an Australian cottage industry found itself in conflict with the hard-nosed world of international fashion.

For decades, local traders used the name "ugg" to describe their product, which - legend has it - dates to the days when shearers wrapped sheepskin around their feet to keep warm. Surfers, too, recognised their merits, pulling on the boots when they emerged from the surf.

Then in 2004, at the height of the ugg-boot craze, Australian manufacturers - most of them small outfits with a handful of workers - received letters from an American conglomerate, Deckers Outdoor Corporation, instructing them to stop using the name or face litigation.

Deckers, it emerged, had bought the trademark, and it did not want competition, not even from the likes of Westhaven Industries, a disabled services charity that employs 65 people at its factory in New South Wales.

As disbelief turned to defiance, local companies banded together to fight the legal challenge. In a world buffeted by the chill winds of globalisation, they seemed certain to lose. But some stories have a happy ending, which is why Bronwyn and Bruce McDougall, owners of Perth-based Uggs-n-Rugs, are pinching themselves with delight.

The McDougalls had appealed to the organisation that regulates trademarks in Australia, claiming that ugg - originally an abbreviation of ugly, so it is believed - was a generic term. This week they received the news that the regulator, IP Australia, agreed. The name is to be removed from the register of trademarks. Local manufacturers can once again call their boots uggs.

"This is a moral victory for all Australians," Mrs McDougall said.

There was elation, too, in the town of Maitland, 100 miles north of Sydney, where the Mortel family have been producing ugg boots for nearly 50 years. Frank Mortel, now 73, set up a tiny sheepskin factory after emigrating from Holland in 1958.

Descended from six generations of orthopaedic boot makers, he made his first pair of fur-lined slippers for his wife, Rita, who had complained of cold feet. He then began to manufacture the slippers and boots commercially.

"We called them uggs from the start," said Mr Mortel, who believes that Deckers was "trying to frighten people off".

His son, Tony, who runs the family's factory, turning out 16,000 pairs of fur-lined boots a year, agrees.

"People around the world know them as uggs," he says.

So how did a quintessentially Australian product end up being hijacked by a corporation based in Santa Barbara, California?

In 1971, a local surf champion, Shane Steadman, decided to capitalise on the popularity of uggs among Australian and visiting US wave riders. He began selling the boots and registered the name. Then in 1979, Brian Smith, another Australian surfer with a sharp business eye, went to New York with a few pairs in his rucksack. He set up a company, Ugg Holdings Inc, registered the Ugg trademark in 25 countries and sold out to Deckers in 1995.

As far as the American company was concerned, it now owned the ugg boot, and in 1999, it sent out a flurry of warning letters to Australian traders. It did not, however, follow them up. According to Middletons, the Melbourne law firm that represents Deckers, it was only when the Australians began selling uggs over the internet to meet soaring international demand that it felt obliged to crack down.

In the meantime, of course, uggs had made the transition from fashion crime to fashion icon. They were being seen on the streets of Paris and Beverly Hills, worn by the likes of Kate Moss, Madonna and Pamela Anderson. Waiting lists swelled as consumers clamoured for a pair. No longer made just in boring styles and only in tan, they were being produced in pale pink, denim and lavender, some of them embroidered, others trimmed with lace.

With supply unable to meet demand, many shoppers looked online and found the likes of Uggs-n-Rugs and Blue Mountains Ugg Boots. That was anathema to Deckers, which marketed the boots through the UGG Australia brand.

In early 2004, Deckers sent letters to 20 Australian firms, informing them it owned all rights to Ugg and ordering them to stop using it.

Tony Mortel "just laughed ... I thought they were crazy. I threw it in the bin". But soon afterwards, at the instigation of Deckers, Mortels Sheepskin Factory was ejected from eBay, the internet auction site where it had been selling uggs to American shoppers. It was ordered by Icann, the internet regulatory body, to stop using ugg in its domain name.

Mr Mortel was furious. The demand for him to renounce the ugg name, without compensation, amounted to "borderline monopolisation", he says.

At Westhaven Industries, based in Dubbo, NSW, the general manager, Gordon Tindall, was similarly outraged. Uggs were the charity's most profitable product and, without them, the business would not survive.

In the Blue Mountains, west of Sydney, Brian Iverson, whose family has made uggs for three generations, was horrified by the letter.

"Uggs are as Australian as the Harbour Bridge," he says.

The manufacturers decided to unite under the banner of the Ugg Boot Footwear Association and set up a fighting fund. The thrust of their argument was that Brian Smith, the surfer, was awarded the trademarks in error because ugg was a generic term, meaning a flat-heeled, pull-on sheepskin boot.

Mr Tindall believes that ugg is "as generic as meat pie or tomato sauce", and says of Deckers: "It's like Ford Motor Company claiming that they own the word 'sedan'."

The Australian firms decided to try to have the trademarks rescinded, in Australia at least. Without the name ugg, they believed, they could not sell their boots.

Now they have been vindicated by the trademark body's decision. Ian Thompson, the officer who heard the case, said: "The evidence overwhelmingly supports the proposition that the terms (ugg, ugh and ug boots) are interchangeably used to describe a specific style of sheepskin boot and are the first and most natural way in which to describe these goods."

The ruling may be challenged by Deckers and applies only to Australia. The company still owns the trademark in other jurisdictions, including the US, which means that Australian manufacturers are unable to sell in that country.

David Stewart, lawyer for the McDougalls, said it was possible that the decision would have "some sort of domino effect". Past attempts to have the trademark removed from the US register had failed because the courts had not been convinced that ugg was a generic term in Australia, he said. A future challenge might be more successful.

Deckers did not react to the ruling. But in the past its lawyers, Middletons, have objected to the portrayal of it as "some big, bad, aggressive American company that likes squashing small businesses". Tony Watson, a Middletons partner, said it was Deckers that had transformed the boots into a high-fashion item, spending US$7 million ($10 million) on marketing and sending them to celebrities. It was naturally reluctant to see others reaping the benefit.

But, according to Mr Mortel, Australian manufacturers worked hard for decades to market uggs, only to see the name appropriated. His firm and others had long been exporting to the US and elsewhere, he said.

"Between us, we must have spent far more than Deckers on marketing."

The main challenge now facing Deckers may not be the trademark decision, which gives local companies free rein to sell ugg boots within Australia. It may be the fact that demand for ugg boots is drying up, as the fickle fashion world looks for the next footwear trend.

The must-have boot is a luxury sheepskin boot made by another Australian firm, Love From Australia, and worn by Sienna Miller, the actress. Ugg-wearers beware.