Under the proposed bill, a new association right is included to protect official Olympic sponsors. This includes a list of words which, in combination, are prohibited.
For example, if any advertiser were to use the line "Come to London in 2012", it would count as an automatic infringement and entail a fine of up to £20,000.
As such, it will be near enough impossible for most companies to acknowledge the Olympic Games without getting into trouble.
The IPA is planning to lobby the London Olympic Committee and MPs in the run-up to the bill, which it has branded "unreasonable", being debated when Parliament returns in October.
Chris Hackford, legal manager at the IPA, said: "While we acknowledge the need to protect the official sponsors of the London Olympics, the provisions of this bill take this protection too far and is detrimental to UK businesses who are not official sponsors."
An IOC spokeswoman said that legal protection is essential to maintain the value of an Olympic brand.
"It is absolutely normal that there should be rules in place to protect sponsors and partners who sponsor the Olympic movement," she said.
The Olympic bill is going to committee after recess on October 10 and is due to be completed by October 20.
On the London 2012 website, there is a stark warning to all companies that using a name or mark associated with the games could land them huge fines.
"London 2012 is prepared to take legal action in order to protect the Olympic mark. This could include court orders for seizure of unauthorised material and payment of damages," the site reads, adding: "We can not permit anyone to use the Olympic mark."
According to London 2012; the Olympic mark includes:
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