According to the Copyright Office, all works published before January 1, 1923 are in the public domain. So if the copyright in the original Zorro character is in the public domain, the public may also exploit the character. But how far does the right extend? As a matter of legal doctrine, in general copyright and trademark can happily co-exist. Therefore, even if Zorro was in the public domain, to the extent that Zorro has source-identifying significance (like Mickey Mouse does), Mars may use Zorro only as long as doing so isn't likely to cause confusion as to the affiliation, connection, or association of Zorro with Mars, and Mars doesn't suggest that Zorro sponsors or approves of Mars' goods. (That's an abridged version of the statutory language, don't blame me because it's almost unintelligible).

We can't know whether this might be happening without knowing what the accused work is, but the complaint may be squarely in doctrinal conflict territory. There is no suggestion that Mars used the word "Zorro"; it instead appears that ZPI is alleging that use of a Zorro character in any form is infringing. ZPI describes its proprietary character as dressed in black, wearing a flat Cordoba hat, a mask and a cape, and you can see that the registered logos of Zorro and the Zorro costume are both quite similar to the public domain Zorro.... So to the extent that the claim of proprietary rights in the Zorro character is co-extensive with the copyright in the character, which gives?

My vote right now is that the mere use of a character in the public domain, particularly when it appears to be someone simply wearing a Halloween costume representing the character, isn't going to be perceived as an endorsement in the first instance.