Sydney 2000 was the test case for the tough new controls on rogue advertisers and all agree that the games down under struck a fair balance between commercialism and maintaining the integrity of the Olympics. But British advertisers fear that the organisers of the London 2012 games have now strayed into Orwellian territory.

So keen is the Blair government to comply with the IOC's requirements that it has banned several seemingly innocuous words to stop ambush marketers associating themselves with the London games. According to the London Olympics bill now before parliament, advertisers will not be able to use the words "summer", "London", "gold", "silver" or "bronze" in conjunction with "games" or "2012".

Slogans such as "Come to London in 2012", "Play our new poker games this summer" or "Watch the games at our pub this summer" would be off-limits.

Businesses that fall foul of the laws face fines of up to ?20,000. British advertisers are seething over what they consider an over-zealous interpretation of the IOC's rules.

Marina Palomba, the legal director of the Institute of Practitioners in Advertising (IPA), said: "This sort of legislation is insulting. It is specific and unprecedented protection for a small group of internationally based, predominantly non-UK companies to the detriment of all other businesses." Such severe controls are also likely to inflate the value of official Olympic sponsorships - already the province of a few wealthy corporations.

Eleven multinational companies - including McDonald's, Coca-Cola, Samsung, Visa, Kodak and Omega - have paid the IOC a total of $866m (?480m) for the right to be the official worldwide partners of the Olympics from 2005 to 2008. This is nearly a third more than the previous group of sponsors paid to be associated with the summer games in Athens in 2004 and the winter games in Nagano in 2002.

Official sponsors have the rights to use the Olympic trademarks and symbols, and are guaranteed these rights will be denied to their competitors.

The Department for Culture, Media and Sport argues that the proposed new advertising regulations are necessary for London to host the games. "The legislation prevents companies from cashing in on the event without having paid to become an official partner," a spokesman says.

The DCMS claims the restrictions simply mirror those that applied in Sydney. However, the Sydney 2000 Games (Indicia and Images) Protection Act only banned unauthorised use of "gold", "silver" or "bronze" with the words "Olympian" or "Olympic".

The IPA is lobbying MPs to dump the "arbitrary" list of banned words. "This goes much, much too far. To not be able to say 'go bronze in 2012' without infringing the act is ludicrous," Ms Palomba says.

But sports marketing companies argue the restrictions are justified. The IOC relies on sponsorship dollars to help fund the Olympics. If sponsors' investments are devalued by ambush marketing tactics, this could threaten the financial viability of the games.

"The only thing the IOC and the London Organising Committee for the Olympic Games [LOCOG] have to sell is their intellectual property and if they don't protect it, they don't have anything to sell," Bob Heussner, who runs Octagon Games Marketing, says. "These sponsors pay millions for the rights to some symbols and some words."

But the IPA contends that the existing Olympic Symbol Protection Act, which bans unauthorised use of "Olympics" and "Paralympics" and variations of these terms, protects sponsors sufficiently.

"There is adequate protection for official sponsors without limiting genuine freedom of commercial expression," Ms Palomba says. "This new bill protects multinational companies who are more than capable of looking after their brand."

The IPA also wants the automatic presumption of guilt contained in the draft bill reversed. As it stands, the onus is on businesses to prove they did not infringe official sponsors' rights, rather than require LOCOG to prove they did.

But sports marketers are suspicious of companies that complain about the Olympics bill. "I don't think they're truly interested in supporting the UK Olympics," Mr Heussner says. "Their motives are greedy ... they're about exploiting the games, not supporting them."

Ambush marketing reached its nadir in Atlanta, when Nike, which was not a sponsor, plastered every available billboard in town with its ads. Not only did Nike win more brand recognition than the official sponsor - and rival - Reebok but it ran aggressive slogans such as "You don't win silver, you lose gold", which were the antithesis of the IOC's emphasis on participation.

"Atlanta was a wake-up call for the Olympic movement - the IOC was horrified," Mr Heussner says. Interestingly, Nike became an official sponsor of the Sydney 2000 games.

Intellectual property lawyers agree that the proposed restrictions on advertising during London 2012 are warranted. Joel Smith, an IP partner at Herbert Smith law firm, describes the controls as "draconian", but concedes they are necessary to protect official sponsors' investment.

Sarah Wright, IP solicitor at Olswang, argues that LOCOG has to cast its net wide now if it is to guard against ingenious new ambush tactics that advertisers may have devised by 2012.

"The UK is the global leader in advertising," Ms Wright says. "Whatever you put in the regulations, UK agencies will no doubt come up with creative and innovative ways for their clients to refer to the London 2012 Olympics. The proposed regulations ensure that their clients won't be able to imply a close connection."

The DCMS stresses that LOCOG will enforce the restrictions "in a proportionate and sensible way".

Despite the hue and cry, few expect many prosecutions in 2012. Instead, the new law is likely to act merely as a powerful deterrent to ambush marketers.

But the IPA's furious lobbying appears to be paying off. Ms Palomba received a call from the DCMS this week asking her to come in to discuss amendments to the London Olympics bill. "I hope they've realised they made a mistake," she says.

Rings on the menu

Regardless of whether parliament passes the London Olympics bill as it stands, Phongsri Chanudom could already be flouting trademark law.

She runs Olympic Cafe in south London, which has adorned its menus with the Olympic rings. This contravenes the existing Olympic Symbol etc (Protection) Act, which restricts the use of the word Olympic and the ring symbol.

But Ms Chanudom is no opportunist who has rushed to cash in on London winning the 2012 bid. Her business was already called Olympic Cafe when she took it over from the previous owners, who were Greek, in the mid-1990s. She did, though, add the Olympic rings to menus.

Of Thai origin, Ms Chanudom is unruffled by the government's crackdown on businesses seeking to associate themselves with the 2012 games. Representatives of the London Organising Committee for the Olympic Games have yet to visit.

"We shouldn't be affected. I'm sure the government wants us to be working and not on the dole," she said.

Ms Chanudom believes any restrictions on the use of Olympics-related terms and symbols should only apply to businesses which sprang up after London won the bid.

"They should ban businesses which started this year from whenever they won the bid," she said.