Ministers have tabled amendments to the London Olympics Bill to soften their proposals to outlaw "ambush marketing" by companies who are not official sponsors.
The Bill now says a court may consider whether words such as "Games" have been used in an infringing way, but there will be no automatic presumption the law has been broken. Another amendment orders the Government to consult the ad industry before introducing restrictions on the location of ads around Olympic venues.
A third places a similar duty to consult over any changes to the list of protected words and expressions.
The climbdown, announced in the House of Lords, was welcomed by the Advertising Association, which had lobbied peers and MPs. Andrew Brown, its director-general, said: "These changes to the Bill go a long way towards addressing the concerns expressed about its provisions since July 2005."