PPCHero has a great post that discusses why trademarked terms are allowed in display URLs:
Basically, a company can have a trademarked name as a real sub-domain on their site for site architecture purposes. Example, using the same Nike reference, if I own a website called shoesgalore.com, and I have a full page of Nike shoes, I would probably name that page www.shoesgalore.com/nike in order to achieve the best site architecture possible. With that said, Google can’t force advertisers to change their sub-domain names just because they’re selling a trademarked name product.
I don't think Google is really being completely straightforward. The most common types of abuse we see here are of two forms:
- TM preceding the domain: nike.shoesgalore.com
- TM added after the domain: shoesgalore.com/nike
If Google were to enforce the use of TMs in the URLs, the site-owner would not need to make any changes - they could simply use shoesgalore.com as their display URL.
This issue can be quite frustrating for trademark holders and it is frequently abused by ill-intentioned competitors. Yes, I don't think that Google should have to force advertisers to change their site architecture, however I have yet to see a website that would need to change their architecture to remove the TM from their display URL.