There are some Google AdWords advertisers who bid on their competitors URLs and display ads within AdWords for the URL. Honestly, I do not see this tactic all that often but it happens.
As you may know, it is not that uncommon for the average searcher to type in a domain name into Google in order to go to that URL. That practice, by the extreme definition, is direct navigation search. It is common, heck I have even seen it done for people wanting to go to Google. I kid you not, I asked a former client to go to Google, so he went to Google and then types in google.com into the search box. I am not kidding.
In any event, it seems like some advertisers do it often. They will buy the domain name as a keyword and display an ad for their company. That is like Google buying the keyword [yahoo.com] or [bing.com] on those search engines.
A WebmasterWorld thread has some advertisers talking about this technique. One advertiser is upset because it is being used against his client. When he complained to Google, Google told him he is out of luck because the name is currently not trademarked. Google told him:
As per our discussion I have consulted a specialist and have confirmed that the scope of our investigation is limited to only trademarked terms.
I looked into your account and noticed that the the keyword "#*$!X" is not trademarked. We strongly encourage you to go ahead and trademark this term to avoid future escalations and to ensure that there is no misuse of your domain.
So it is fair game? I am not too sure. While Google may allow it, it doesn't stop your competitor for suing you for trying. So be careful when using this technique.
Forum discussion at WebmasterWorld.