Some strong opinions here. I see this is an old discussion so facts may not have been readily accessible at the time, however, this issue has been mostly settled. I was curious myself so I looked it up, what I found is below.
This is taken from Google (note: this policy was made in 2005 after changing the previous policy that barred the use of competitor keywords):
"When we receive a complaint from a trademark owner, we only investigate the use of the trademark in ad text. If the advertiser is using the trademark in ad text, we will require the advertiser to remove the trademark and prevent them from using it in ad text in the future.
Please note that we will not disable keywords in response to a trademark complaint. In addition, please note that any such investigation will only affect ads served on or by Google." (
http://www.google.com/tm_complaint_adwords.html)
Here is the result of a lawsuit between Google and Geico on this very issue:
"Google Inc. won a major legal victory Wednesday when a federal judge said the search engine could continue to sell ads triggered by searches using trademarked company names.
U.S. District Judge Leonie Brinkema rejected a claim by auto insurance giant Geico Corp., which argued that Google should not be allowed to sell ads to rival insurance companies that appear whenever Geico's name is typed into the Google search box." (http://www.cbsnews.com/stories/2004/12/13/tech/main660644.shtml)
In a further clarification, the judge ruled that Google could not allow the trademark to be used in the ad copy. (
http://www.theregister.co.uk/2005/08/15/google_loses_adwords_trademark_case/)
In summary, using a competitor's name as a keyword is OK, using a competitor's name in your ad copy is NOT OK.
