From the 1966 and '67 vintages, Mondavi made sweet-style wines from this grape and labeled them "Sauvignon Blanc". But in 1968, Mondavi changed winemaking style to produce a dry version. To denote the change to their customers, they came up with the name "Fumé Blanc", derived from Pouilly-Fumé, one of the most popular dry-style Loire Valley wines made from Sauvignon Blanc. Rather than copyrighting or trade marking the name, Mondavi offered to allow anyone to use the Fumé Blanc name to market dry-style Sauvignon Blanc. Note that the term is only used on American wines.
"Fumé" literally translates to "smoke," but this has nothing to do with a "smoky" flavor in the wine, although that is a popular notion. It instead refers to the morning fog that covers the Loire Valley and is "as thick as smoke." Any smoke-like smells or flavors in Sauvignon Blanc are from aging in toasted oak barrels and are definitely not due to any aroma or flavor character inherent in this grape variety. Although some wineries may choose oak barrel fermentation, oak aging, or both, the use of "Fumé Blanc" on a label does not require that the wine be barrel-fermented or ever contact any oak whatsoever. Fumé Blanc is simply an approved synonym for Sauvignon Blanc.