People for the Ethical Treatment of Animals or PETA, filed a lawsuit in 2002 alleging the milk board was misleading the public by implying in the television ads that cows produced quality diary products because of they're happy.
ANNOUNCER "Great cheese comes from happy cows. Happy cows come from California. Real California cheese."
PETA contends cows are mistreated on many dairy farms, a charge refuted by the industry.
But the California Supreme Court has declined to review a lower court decision that declared the milk board a state agency and therefore had immunity from a law prohibiting false advertising.
Spokesman Bruce Friedrich says PETA will continue the fight.
"We're looking at ways that we could bump it in to the federal court system. And we're also looking at suing in other states."
Producers say the award winning "Happy Cows" advertising campaign has been a key contributor to the increasing sale of California cheese in recent years.
(Photo courtesy : PETA)