Click Fraud is an Industry, so play safe
Click on Competitors' ads with malicious intent to exhaust their budget on useless clicks, are termed Farudulent clicks on PPC ads. Some advertisers consider, spending on PPC should be bothway, so they also pay for clicking on competitors' ads. Google detects such clicks, mostly by ameteurs in this field, most of the time, but it is not 100% accurate, and many times advertisers feel their ads have been clicked by competitors, because of clearcut indication in stats. Masters of Click Fraud Industry have evolved many innovative techniques to escape Google's auto-detection system. Google's TOS clearly sates, clicking on competitors' ads will disqualify them from adwords program. However, till we find people prosecuted by court of law for such activities, playing safe is a better strategy.
Make best use of Geographical Setting
If you suspect people of some nationality or location would be maliciously clicking on your ad, you must use the targetin exclusion tool. Change the default setting to Target People physically present in the targeted location, and exclude either those physically in excluded region, or both in excluded region including people who are interested in excluded region. The latter would exclude even people of those nationalities who are present in the targeted region. For example, if you are targeting USA and suspect Your competitors in India are maliciously clicking on your ad. You should exclude India, and set exclusion setting to exclude people physically present in the excluded region, and also those who visit pages related to the excluded region. This brings great result in most of the cases. People won't be able to access your ad either sitting in India, or most likely even in USA, if they visit India related pages on the same computer.
Use Location based bidding
Advertisers should avoid common bidding in entire targeted region. Use low bid for the whole region and increase the bid for specific locations within the targeted location. This way one can minimize the loss through fraudulent clicks incurred. For example, set the bid for whole of USA, $2 and increase the bid of city and states by 30%, 40%....
Stay away from some obvious...
In the worst case, you may avoid exposure on terms where your competitor would obviously assume your presence. Simply add some Exact negatives, in negative keyword list. It is a technique which works wonderfully.
Change the Domain Name
If you are in a highly competitive industry, prone to click fraud. It is better to shift some keywords, identified in the above step and set up a new campaign with new domain. Are you still surprised why you find some industry leader missing on some great keywords.