Geico, eBay, American Blind, Louis Vuitton, Mark Nutritionals v. Google (bring it on!)
First, if you're not already familiar with this situation (and want to be), go read some articles about the Google ad keyword suits, such as these:
Here's a article that summarizes the whole thing, from Search Engine Watch. Here's more on the American Blind case and the situation in general.
With the American Blind case, Google hopes to gain a ruling in their favor concerning the selling of keywords that are merely descripive - such as "american" and "blind" or "decorate." American Blind had threatened to sue Google over its keyword sales, but instead of waiting for them to file suit, Google filed for a declaratory judgment. That means that there is a controversy that could go to court, but one side is trying to preempt the suit and get precedent in their favor in order to try and ward off other similar suits, such as the just-filed Geico suit.
The American Blind case concerns generic words, or descriptive words that have developed a secondary meaning to people in its representation of the owner. The real question is can Google sell keywords that are straight up fanciful. These are marks that were not words in the english language until being made up as a trademark, like "Geico" or "eBay." I don't know if they should be selling these trademarks to trigger ads for others, but my impression is that it is ok as long as the ads that show up do not make false claims that they are that company, as appears to be the case with Geico. Google should have been more careful than to allow such conduct by advertisers. On the otherhand they have a good defense in the case - those ads were for underwriter brokers who dealt with Geico (but still should probably not be titling their ads "Geico").
Elizabeth Radar has more on the Geico keyword suit. She point out that Geico is taking a big risk by suing Google in VA and hoping that can speed the case through the court before some bad precedent comes out from the American Blind case in CA.