If your ad does not actually contain their domain name/company name/other trademarked term, you should be fine using targeting their keyword. The key principle I think (I am not a lawyer, you will still want to ask one) is that you are advertising to people who use that term, not using the term in the ad itself.

I ran into a similar situation. There is a baseball team, the Phillies. "Philly" is a slang term for Philadelphia. Google's system catches the use of "Philly" as a form of "Phillies" and pops up a warning that the term can not be used in an ad. In speaking with Google, as long as the word is used non-competitively it is fine, but such use needs to be human reviewed reviewed. So, for example, I can use the trademarked term Phillies to refer to Philadelphians (non-competitive usage), but not Philadelphians that play baseball (competitive, infringement).

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