For the same reason you'll find X amount of clicks registered on your adwords campaign but when you count up the clicks for each individual keyword the two don't tally. I'm guessing these "extra clicks" are your ad being displayed on terms you never knew you were reaching. Sometimes this will work in your favour and you'll make extra sales, other times you'll be pouring money down the drain or as in this case stepping on other peoples toes (albeit non intentional).
I agree that this is a crazy situation. I'm sure the merchant will see common sense and back down once all the evidence is there but as you rightly put it, should you have to prove your innocence? I think not. If they had gone straight to google and reported it, presumably google would have replied with "sorry merchant X, i'm afriad they're not bidding on that".
Result : One merchant looking rather silly and not so keen to shoot from the hip.
p.
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