There has long been a long debate and a number of legal cases brought against one competitor using another competitor's keywords to trigger Pay per click ads in search engines.
Eric Goldman Reports that in the most recent case of J.G. Wentworth SSC Ltd v. Settlement Funding LLC, No. 06-0597 (E.D. Pa. Jan. 4, 2007), the court held, as a matter of law, the use of keyword-triggered ads and keyword metatags cannot confuse consumers if the resulting ads/search results don't display the plaintiff's trademarks. ,
Goldman points out that there has been a number of inconsistencies in past rulings, but he believes that if other courts follow this conclusion that we should see the quantity of silly litigation over keyword advertising and keyword meta tags reduce.
Goldman has a good review of the facts of the case that are worth reading, and he draws the following personal conclusion:

Even though I'm thrilled with the result in this case, I think the court got the analysis wrong on two fronts. First, I think that neither buying competitive trademarks as keyword nor including trademarks in keyword metatags constitute a trademark use in commerce because neither activity is perceivable by the consumer. Second, I think that it's very difficult to make any determinations (even a pro-defendant determination) about likelihood of consumer confusion based on ad copy without reviewing the ad copy in question...
Nevertheless, this case stands for two clear legal propositions:
* if keyword-triggered ad copy doesn't display the plaintiff's trademarks, plaintiff loses
* if search results don't display the plaintiff's trademarks even though the trademarks were included in the keyword metatags, plaintiff loses

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