A federal agency withdrew trademark protection for the Washington Redskins because it said the nickname is an insult to Native Americans, threatening millions of dollars the team and the National Football League make from merchandise and sponsorships.

A three-judge panel at the Patent & Trademark Office ruled 2-1 that the name wasn't worthy of federal trademark protection. The decision could escalate the campaign against a brand that the NFL and team owner Daniel M. Snyder have vigorously defended against increasingly...