Earlier this week, a trademark attorney told Paid Content that Time Out could win the suit by proving that the trademarked title is "generic or descriptive".
The lawsuit notes that Village Voice Media has held the federally registered BEST OF NYC trademark since August 5, 2008, and that the Voice has continuously used the Infringed Mark in commerce from at least as early as September 24, 1999 to the present."
Voice editor in chief Tony Ortega says, via email, that he's pretty sure that was indeed the first year they attempted such an issue. Which seems odd—cursory Googling reveals that the Austin Chronicle, for instance, has been doing it since at least 1990—but the Voice's resemblance to small-city alt-weeklies is actually a fairly recent phenomenon.
In 1988, eleven years before the Voice began its continuous annual use of Best of NYC, the New York Press presented its first Best of Manhattan issue.
New York has been doing a Best of New York issue for as long as they've been posting their covers to their website (1998). (A specific query has gone unanswered, but it's only been a couple of hours, I'm not bitter.)
A more thorough investigation into the history of the ubiquitous "Best of ___" issue would be a pretty fun thing to attempt at some point, assuming one could track down any old alt-weekly hands who remember back that far.
The point, though, is that the legal action hinges very specifically on the use of the letters NYC. Our friends at Time Out are understandably not in a position to comment on an ongoing legal action, but it seems easy enough to imagine the thought process that went into the decision to do a Best of New York issue, as well the fateful decision about what to title it ("How about, 'Best of New York City'?" "Nah, all that won't fit on a cover.").