True, big companies overlook each others infringements since they turn around and do the same thing. However, this means little guys like J.Frog get screwed here, since he doesn't have endorsement deals.
Back to the OP, how does labeling a Squier a Fender harm Fender? If he doesn't sell it or play out, no one will even see it. If he plays some gigs, becomes a local hero, etc. -- his fans will see "Fender" on the headstock and want a guitar like his -- so they will go buy real Fenders.