Author
Nancy K. Stouffer claims that she invented the word, in her activity books she self-published in the 80's, including the
Legend of Rah, and
Rah and the Muggles. Both authors created works involving magic, fantastic
castles on mirrored lakes, and characters with disturbingly similar names (
Harry Potter /
Larry Potter).
Nancy is being sued by Time Warner and Scholastic to keep her from bad-mouthing the books. She is counter-suing for compensation, after out-of-court settlements failed.
This is not the first time she has sued for this. She objected to the use of the name "Muggle" for a character in the short-lived animated series
Capitol Critters in 1992.
Sources: http://www.realmuggles.com/ and http://www.theage.com.au/entertainment/2001/04/03/FFXGB21J2LC.html