I did something similar for Cooperhealth.org, the web site I run for Cooper University Hospital in Camden, New Jersey.
For an AdWords campaign promoting our new cancer institute, I purchased a few keywords related to one of our competitors, including their full name. Within a month, our hospital's legal department received a letter from our competitor's legal department threatening to sue us for trademark infringement if the AdWords were not immediately removed.
Unfortunately, my employer felt that it could cost upwards of $100,000 to even begin fighting the case and agreed to cease purchasing any keywords containing their trademarked name from that point on.
Of course, I still maintain that I did not infringe upon their trademark in any way, shape or form because, at no time were users impeded from visiting the site they were searching for and the competing hospital's name WAS NOT in my ad running on Google. So, to the end user, my ad appeared as a sponsored link that had no direct connection to the competing hospital they were searching for.
- Andy