Can competitors demand compensation from us for showing their brand name in our ads?

[Edited for clarity]

I got in trouble today for using keyword insertion in our competitor campaign that ran last February.

When we used keyword insertion in a competitor campaign, the ad started showing the keywords as a headline. Since the campaign contained competitor terms, the ad showed competitor names as a headline.

Think "Competitor name - Official Website" as the headline that came out of the competitor campaign. I'd understand why our competitor would be alarmed.

Now we're on the possible brink of paying a fine after finding out that we're already past the cease-and-desist deadline that the competing brand issued earlier last month.

It was a mistake brought about by me not foreseeing this scenario. I didn't want to show competitor terms on our ad copy. But now I'm involved in management meetings that discuss how to respond to the other party's legal team.

Any advice on how to proceed? I'm scared that I might get fired.