Yes, the drawn graphic of the cat is exactly what the defendent infringed on. See the similarity on page 4 of http://apps.washingtonpost.com/g/documents/national/grumpy-c... between the second image and the image used on the coffee.
https://i.imgur.com/nyD3111.jpg
If the image is the issue, then we're basically not going to allow anyone to draw an illustration of a sad cat any longer, which is absurd.
That being said, I imagine the "Grumpy Cat" text is the concern here. If they just used the cat illustration and "Grumppuccino" text they would probably be in the clear (assuming that text wasn't part of the original agreement). The way it's currently presented, it's confusing to consumers and it looks like an official Grumpy Cat product.
This is no different to protecting a business name.
I'm bemused that critics of copyright believe that IP Protection is Evil, but have no problem understanding that they're not going to be able to call their startup "Microsoft", "Google", or "Apple" - because that would be an obvious and ridiculous branding infringement.
But copyright of a single work isn't a brand? In a practical sense it is, because the whole point of IP is that it has market value - and brands, individual works, band and artist names, logos, and the rest, all generate income for creators.
(Or more often for middle men and managers - but that's a different problem, and one that's hardly going to be solved by eliminating IP.)
If Disney finally loses copyright of Steamboat Willie, you will still not be able to use the trademarked Disney Ears. (The one that's three circles.)
A critic of copyright protection could still support trademark and/or patent protection. For example, I'd say that current copyright terms are excessive, but that an entity, whether a person or a company, should have exclusive and perpetual rights to their own identity (i.e. trademark-like protection).