Back in the good old days of search, when Quality Score was even more of a mystery than it is today, you couldn’t bid on competitors' keywords in some engines, let along use their names in ad copy. In fact, doing it could lead to a certified letter containing a cease and desist getting delivered to your desk. It happened to me more than once.
Eventually the rules around this were lifted, and it became a Wild West of competitor search tactics. Competitor bidding went from something that could happen to something that always happens. But if a competitor used your name in your ad, not only did it divert traffic away from you, but it might have raised your cost per clicks (CPCs), and decrease theirs.
Here's a quick reminder of how actual CPC is calculated:
To fully comprehend how competitors bidding on your name and using it in ads can drive up your CPC, you must first remember how actual CPC is calculated. I like to use this handy little formula:
X=Your Calculated Ad Rank (Max CPC x Quality Score)
Y=Competitor Directly Below You Calculated Ad Rank
Formula = Actual CPC = (Y/X)+$0.01
How will competitors using my name in their ad impact CPC beyond them bidding on the keyword?
Since your actual CPC is partly dependent on your competitors' ad rank, they will do everything they can to maximize their quality score (in order to not have to pay out the nose on a max bid). One way to improve their quality score when bidding on your brand terms is to include your brand name in their ad copy, and thus increase relevancy between the keyword and the ad.
A move like this can easily move your competitors' quality score on your brand words from a 5 to a 6. While that does seem like much of a jump, it can quickly lead to increases in what were originally your most cost-efficient keywords, not to mention having a better chance to divert traffic away from your site.
I am a small brand. What I can do to stop the competition from doing this?
Have no fear -- filing a Trademark Complaint with the search engines is easy to do and anyone can do it, regardless of size or budget. The only requirement is that the company being advertised has legal claim of the trademark in question.
Merely fill out this form for Google and this form for Bing, give it 4-6 weeks, and your name becomes enforceable. All unauthorized users who have your trademark name in their ad, will have their ad subsequently disapproved. This form also gives you the ability to authorize companies (such as resellers) of your products to use your name in their ads.
Do keep in mind that the systems are not 100% at filtering out the violators, sometimes some sneak through and can rotate for a few days, but it does not last.
Small moves like these not only protect your brand, but slow down your competition and can even save your AdWords some cash. Unless you are not the trademark owner, there is no reason not to make the move.