Advertisers should better not imply in their keyword ads that their competitors are selling cheap counterfeit products of inferior quality.
Eric Goldman mentioned this case (Morningware, Inc. v. Hearthware Home Products, Inc.) on his blog in mid-November 2009.
Morningware and Hearthware (=NuWave) both offer “counter-top electric ovens“. On their websites both companies point out that they hold “Worldwide patents” etc. The products seem to targeted at people who first learnt about this product by telemarketing (“As Seen on TV“). The products in fact indeed look almost identical. Please see here and here. To summarise: both companies appear to be selling portable, electrical ovens at an impressive price (above 100 USD) to most presumably couch-potatoes-customers who appear to be likely to be convinced/tricked into the purchase of such a product by marketing claims such as “worldwide patent” and “most affordable way of cooking” or extra “free” items, such as e.g. “the Custom Carrying Case” and “FREE Two NuWave Twister Multi-Purpose Blenders”.
The defendant has booked the plaintiff’s trade mark to trigger his ads. What makes the case so interesting however is the text of the Ad by Heartware: “The Real NuWave ® Oven Pro Why Buy an Imitation? 90 Day Gty.”
sample-ad created by the author
Because the defendant had not referenced the plaintiff’s trademark in the ad copy, Google would not act on behalf of the plaintiff, meaning that the trademark owner had to go to court to fight against the display of this ad. For a summary of Google’s TM policy, see here.
As I am currently working on the unfair competition part of my thesis, § 7 of the Austrian UWG (law on unfair competition) immediately came to my mind, which forbids entrepreneurs from using false statements/derogatory speech in advertising. So, while totally pointless and derogatory statements are covered by the sweeping clause of § 1 UWG, false (factual-)statements (that could however be proved to be true) are sanctioned by § 7 UWG.
The OGH has always interpreted the meaning of the term statement widely, so implicit, indirect or subtle statements are also covered. Furtermore it is not necessary to explicitly name the competitor, its enough if he is “obviously affected” by the statement. 
The Austrian Supreme Court has thus ruled that following statements to be “factual” statements: that a competitor’s product is a “almost copy” („weitgehende Kopie”; ), that a competitor’s product is a “discount product” („Diskontprodukt”; ), that a competitor’s product is “rubbish ” („Klumpert”; ), the claim that a competitor is violating intellectual property rights through its products („Patentrechtsverletzung“ ).
Now looking at the AdWord at hand I can spot various indications pointing towards my assumption that such an ad, displayed in Austria (or: directed at uses in Austria) would lead to the application of § 7 UWG and thus would find that the ad constitutes an act of unfair competition as the the ads implies that the plaintiff”s products are a “cheap” (inferior) “copy” (counterfeit) of a “®“- protected (patent or trademark protected) product.
This, together with the fact that users exposed to this ad were searching for the trademark of the plaintiff, amounts to stating that the plaintiff is selling cheap counterfeits of inferior quality and would thus, if not proven true, constitute an act of unfair competition under Austrian law. Thus, the defendant would most probably (in my opinion this is not a case of Art 10 ECHR; freedom of speech) be subject to an obligation for omission, damages and revocation.
 Handig in Wiebe/Kodek (Hrsg) UWG, § 7 Rz 25ff.
 OGH 18.03.1997, 4 Ob 47/97h –Staubfrei- wbl 1997, 309 [Schmidt].
 OGH 24.07.1976, 4 Ob 320/76 – Stahlkanalverbau- ÖBl 1977, 11.
 OGH 29.01.1991, 4 Ob 5/91 – Diskontprodukt – ÖBl 1991, 224 = ecolex 1991, 331.
 OGH 03.10.1972, 4 Ob 344/72 – Espressomaschinen- ÖBl 1973, 105.
 OGH 01.06.1999, 4 Ob 72/99p – Spritzgusswerkzeuge- ÖBl 2000, 35 = GRUR Int 2000, 558.