A California federal court ruled that it's "allowed to bid on a competitor's name for search ads."
Both companies Network Automation and Advanced Systems Concepts, sell scheduling and management software and Network Automation purchased the keyword "ActiveBatch," a trademarked product of Advanced Systems Concepts on the Google and Bing search ad networks. Advanced Systems Concepts sued Network Automation and won in court. But the appeals court has now overturned that judgment.
The reason the appeals court overturned the original decision was because the lower court didn't take into account the landing page nor the ads being sectioned off and labeled as ads. Due to those facts, the appeals court felt there was no confusion as to the ad.
You can read Google's official AdWords trademark policy, as well full court ruling, see the embedded document, courtesy of Gary Price: