Another interesting case, more so because it is a case of first impression! I would have thought this had come up at some point or another before now.... Anyway, the court upheld the decision of the TTAB that Section 2(b) of the Lanham Act prohibits the registration of these insignia.
Houston and Washington, D.C. both were attempting to register their city seals. Both received final rejections from the TTAB and appealed to the Federal Circuit.
The court stated: "Section 2(b) prohibits registration of an "insignia of the United States, or of any State or municipality." We see nothing in this plain language that suggests a government entity such as Houston should be exempted from the reach of the prohibition."
The case is an interesting read: http://1.usa.gov/1hi5s7e