Thanks for posting the picture. I am glad you did as my shepherd has the exact same conditions as seen in the photo.
I was told it was either pyoderma or an immune system disease (pemphigus). I was hoping for pyoderma and we have her on antibiotics. They are very strong and making her nauseated (cephexalin). She has to stay on it for 4 weeks! It got better and then it has gotten worse in the second week. Her lip swelling fluctuates.
There is also someone who has a shepherd with the same symptoms. They posted a photo on the web in 2004 at the photo site:
If the link does not work, copy and paste:
I have tried contacting them via email, but have not heard back. Have you heard anything to help diagnose? How long has it been going on?