I work on websites for a particular industry where the tactic of using competing companies as your keywords is oft used. They go even further by creating Google AdWords campaigns that strictly use other companies as keywords, so that if you search for "John's Novelty Gifts", a sponsored link comes up for "Sarah's Novelty Gifts". I take issue with this as well, but I wonder if there's really anything you can do about it. I'd like to see one of the experts in this forum give a solid explanation about the legality of such tactics.
I would imagine in the end, it depends on the industry you're in. My reasoning as to why it is probably legal in the industry I work in is as follows, using those "novelty gifts" stores as examples:
If a prospective customer types "john's novelty gifts" into Google... they are looking for one of two things:
1. Novelty gifts, wherever they can find them. Perhaps they had heard the name "john's novelty gifts" somewhere, which is why they've searched for it.
2. The actual "John's novelty gifts" store, because they have some interest in that particular store.
in the #1 scenario, they're looking for novelty gifts, not for your company. So if another company can provide novelty gifts, the customer shouldn't be denied that information. In this case, the customer would be perfectly content to see "Sarah's Novelty Gifts" as a search result.
in the #2 scenario, someone who for some reason cannot type your actual url into a browser is using an SE to get to your site. If such a customer sees "Sarah's Novelty Gifts" as a search result, they would not be interested, as that is not what they are looking for. At least, that's the theory.
It's not all that different from someone opening up a store next door to yours that sells the same items... if someone walks down that sidewalk looking for what you sell, you by no means have the right to monopolize the selling of that product on that street... even if it seems totally unscrupulous for a competitor to open up right next door to you. If someone's looking for your store in particular, then they wouldn't give the time of day to the store next door.
The difference with your issue is that piggybacking a competitor's URL is more like them trying to open up a competing store on a street that you OWN.