JS_Harris - 7:33 pm on Jul 21, 2013 (gmt 0)
Don't bother with DMCA notices in this case. You have to remember that Google will never approve a DMCA notice against something that Google themselves do. Google links to all sites and although they provide tools to have those links removed a DMCA is not such a tool.
If you're so inclined you can use the disavow tool and disavow their domain. You could take it a step further and let the directory owner know that Google getting disavow notices about their domain, when actual links exist, might hinder their rankings. Wish them luck with that and the owner might just err on the safe side. Offer to charge them $75 to be removed from your disavow list? I wouldn't recommend that but the directory owner may think twice about trying to extort money from people who don't like his ethics in the future.
Two can play the same game so they say but I'd recommend you do nothing at all. If you feel you need to do *something* then adding them to your disavow list is probably more than enough. Don't get into confrontations when you don't need to.