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talismon - 8:26 pm on Aug 12, 2009 (gmt 0)
We had a similar situation a few years ago when we received such a letter from a competitor. The funny thing was THEY were bidding on our brand name too. We took the doc, did a find and replace using their company name and sent it right back to them! Cooler heads prevailed and we came to an agreement that we would not bid on each others brand terms.
I had thought Google recently changed their policy on using competitor and/or trademarked terms in the actually ad itself. You can certainly bid on trademarked or service marked terms as keywords. This is an empty threat.