The problem being that 'modifications mozilla doesn't approve of' includes backported security fixes. This was always the sticking point.
How does fedora deal with this restriction? Just by following upstream's model of only shipping newer versions and never attempting to backport any fixes (that are not also done upstream)?
It does seem unfortunate that 'firefox, plus some fixes from later versions of firefox', is deemed 'not firefox' according to the trademark policy. I don't think anyone is very happy about this state of affairs, but I understand a great deal of discussion went on and Debian was not able to persuade Mozilla to amend the terms to allow this. I am not familiar with the details of why no agreement could be reached.