Shameful tactics to compete against an up-and-coming competitor

Agreed- this is against Google's guidelines. You should contact them and they'll have the ad removed.

I second this - I've been overseeing an Adwords account with 5-digit monthly spend, and Google does take this pretty seriously, absolutely get in touch with your Adwords representative and get this sorted out. Until that happens, you could outbid them to push this off the top position. Their strategy isn't going to be nearly as effective in the sidebar since they are attempting to emulate an organic result.

Here we go again. Instead of apologizing for your mistake and removing the advertising you are hiding behind a google loophole to justify the use of our trademark. If you really did not intend to deceive the searcher than you should have never used our trademark term to begin with.

So? If the keyword is a competitor's brand, this is clearly deceptive.

I'm not sure what your point is in the above, but looking at the blog you seem to think that giving a name to the mechanism by which you have engaged in deceptive practices absolves you from responsibility. It does not.