Indeed. That's something we didn't consider, and interesting.
Villagers probably should calm down their dogs if they decide the fight is over. Gotta think how to go about with it.
Are their dogs obedient enough to calm down with verbal command, or should the NPCs be near the dogs to calm them down.
In reality it also might be that a dog having witnessed his master being seriously attacked would never accept the attacker's presence again.
Lots of things to consider here.
Well, if we're talking about turning this into a potential feature, if it were me, I would have some sort of variable(s) to determine how the dog would act, giving dogs a personality trait of sorts. Maybe... loyalty/relation + intelligence + age/sex would create a good combination of possible reactions. Some dogs, at least in modern day, will also flee when they see their owner is being out numbered and there survival would be in danger if they were to intervene.
NPC's would also need to react to the dogs actions somehow, maybe shouting commands until the dog obeys creating a situation for the player to handle.
Other than that, I think the simple way would just be to mimic their owners hostilities.