1seo: What should I do about competitors who spam the search engines?

You mean they use blackhat technique for boosting their rankings or they use spammy blackhat on your site to get you penalized?

If they are using it for their own sites, you can do nothing. Matt Cutts says, you can report them, but that would make you a snitch. SEO is a tough business, 90% of self proclaimed "SEO experts" are falling behind. Learn about SEO, you won't always be able to report spammers.

If they use it to penalize your site, than you won't be a snitch if you report "unusual backlinking activity" in your Google Webmaster Tools account.

+ since you sell some BH as well, it would be very immoral to report competitors.

Just build quality backlinks and unique content for your sites and you should be over your competitors who spam the search engines.

You can try reporting them to the search engines either via their spam report email address, or through the "dissatisfied with these results" link that most engines have on their results pages. If you decide to do this (and I generally don't bother) be sure not to complain that "it's not fair," and that your site is better or that you're losing money, etc. Simply mention that the search results for the particular search query you tried is bringing up multiple domains for essentially the same product, service or company, and that you thought that the engine might want to know about this.

The results may or may not change over time, but at least you can feel good that you tried to help them to improve the quality of their results. They really do want that info, but it's unclear as to whether they will agree with you and also act upon your report.