This is a time tested and effective marketing strategy that you should take under consideration. As long as you do not lie about your competitors you are in the clear.
A tactic with many faces
Your proposed tactic is to get your prospective customer to test your product "head on" with the competitor.
Remember the blind taste tests between competing products -- and then they show you that you just chose Coke over Pepsi or Folgers over whoever it was. One market you will see this type of aggressive marking being used is when stores "guaranteeing the lowest price". If you bring in a advertisement from their competitor they will match the price. Some will do it if there is an lower advertised price within X days of a purchase. Another is cell phone carriers who offer to pay you to leave their competitors-- offering to pay the cancellation fee at such-n-such. Another is the "double the competitor coupon" days.
This is effective when a product is largely interchangeable and price point is the main point of differentiation.
When you are a start-up you need to be aggressive. You can aggressively promote yourself-- and you can aggressively go after the perceived weakness of your competitor.
You can legally mention another company by name in your marketing and advertising. Most marketing professionals -- outside of the political context -- recommend against a strategy of mentioning another competitor by name. But, when you are an "underdog" it is an effective way to create some attention.
When you do it is critical to be very factual and not at all subjective. Their product "freezes all the time" is not factual -- it is subjective. Marketers use "implied" contrast rather than direct contrast. So "their stuff freezes all the time" becomes "Our product never freezes." -- or "now with 99% less freezing. . . . "
Specifics: What is it really?
On your promotion-- identified exactly what it is will be critical. you want a double bump-- the primary one is portraying a sense of confidence. You are so confident in your product that you will give it away free to someone using your competitors product because you are sure they will come to you. That confidence will communicate to your potential customers. So don't lead with their need to prove they have purchased the opponent -- lead with Something like "Compare for Free!" Free 90 day evaluation for all customers of a qualified competitor.
Challenge: Finding the People
Offering the promotion is one thing. Making it work will be another. Why would someone who has already made a purchase decision be out looking for another product? When will they? Where will they? You will need to be getting your offer in front of them at that time. Are you going to purchase PPC when people are searching for technical support of the competitors' software?
More Specifically: In the UK
The CAP code (which is the British Code of Advertising, Sales Promotion and Direct Marketing ) states:
COMPARISONS WITH IDENTIFIED COMPETITORS AND/OR THEIR PRODUCTS
18.1 Comparative claims are permitted in the interests of vigorous competition and public information. They should neither mislead nor be likely to mislead.
18.2 They should compare products meeting the same needs or intended for the same purpose.
18.3 They should objectively compare one or more material, relevant, verifiable and representative features of those products, which may include price.
18.4 They should not create confusion between marketers and competitors or between marketers' products, trade marks, trade names or other distinguishing marks and those of competitors.
18.5 Certain EU agricultural products and foods are, because of their unique geographical area and method of production, given special protection by being registered as having a 'designation of origin'.
Products with a designation of origin should be compared only with other products with the same designation.
Being Taken to Court
Nothing you do can prevent you from being taken to court. Nothing you do can prevent you from receiving a cease and desist letter. Some companies are very aggressive with legal strategies to protect their market share. If you are getting in their way, and they feel threatened they will act. If they have a big legal department and sense you don't that may be one of the strategies they use to distract, disarm, or silence you. That is one of the characteristics of our free market.
What happens in court is a different issue. Ideally we would all like to say that truth, justice and fairness will always prevail-- but it rarely does. there are always nuances, and power is leverage to benefit those with resources.
Does this mean you should do anything that runs the risk of getting sued? No. Just act responsibly. Ensure that you document why you do what you do.
Final Thought:
I would present this as a "Free Product Comparison" -- something that says to the effect "We are so proud of our product that we challenge any customer using a competitors product -- for free!" You will get 80% of the benefit of the offer just through the promotion of the offer's availability. I would aggressively advertise it off of PPC on users search of your competitor in your geographic market.
