"the issue is they are actually just trying to turn their copyright into a trademark"

That is certainly your opinion of "the issue," but that is a complete begging of the question. That would have to be argued in court. They do have a trademark which includes that public domain character in it, that much is fact. This is no less of a trademark than any other trademark that consists of non-copyrightable elements. The rulings on a trademark case would simply be based on the intent or likelihood to mislead people into believing there's an endorsement or association there.