General Comments -
1. Puppy license usually doesn't expire until around 10 mos. However, a nipping puppy can get nipped back ... harder.
2. Have both dogs been trained for Bite Inhibition?
3. How bad was the bite and how severe was the incident - Was it a correction that went wrong, was it a quick correction slash, or an angry shake?
4. Around 4 - 5 mos, puppies can get their adult teeth, and they can have sore mouths, getting extra nippy as their teeth come in. Could the correction have been due to that - Cloe would have snarked sharply [b/c Penny bit too hard], when she bit back [in stronger correction?]
5. Was it a silent snap or did she make a sound? And, what was Penny's reaction when corrected [?]
6. When you say 'we got them apart' - Were they fighting, or just playing more vigorously?
7. Just like teenage athletes, two tough dogs can come back happy and bloodied when they play. If you think it is too rough then you need to protect Cloe [!!!] from Penny, and put Penny in a 15 - 30 second timeout. As you suggest, it can be the puppy's fault for escalating, so you have to protect the adult. From what you wrote, I'm guessing that Cloe doesn't usually escalate or get out of control, but responds to the puppy. And, as the puppy approaches 6 mos, she may grow more confident ... and become a bit more of a brat and push things ... So, Cloe may reprimand more harshly ... If Cloe is is 'control' her reprimand may be swift and scary, but not vicious or bloody.
8. If a reprimand gets bloody, I believe that you need to monitor them more ... and keep Penny calmer ... so Cloe doesn't have to 'protect' herself.
9. On the other hand, if there is occasional blood (the equivalent of a bloody nose, mouth, or ear), you have to observe and decide how much is too much.
My nephew has a 90 lb Pit mix. The dog is well-trained, placid, and bullet proof, but he plays very roughly if the other dog can also play roughly. Things don't get out of control, but sometimes a mouth or ear get a little bloodied. If we hear a yelp, we would step in, but I think the injuries are unintended and not as painful as they look. My Lab mix was similar, but he was usually the one bloodied ... when he played with smaller dogs that are happy to let loose with another tough dog. When the dogs are finished, they collapsed calm, tired, and happy [not angry or scared - very important]. So I compare it to too kids wrestling and giggling as they beat the tar out of each other. The end result is important - are they happy and relaxed when finished, and not badly hurt ... Or did things escalate, so we need to calm things down ... You have to watch and judge.