Mardi_Gras is certainly correct as far as advice goes. WebmasterWorld members certainly do not have any knowledge of your/their particulars thus any information we provide is completely invalid.
If this was me however, your quoted statement says it all unless they have trademarked the brand of the domain... you should check this out.
Barring that... if this was me I would poilte advise the competitior's lawyer to go ahead and waste their clients money... again if the above statement is true.
I wouldn't say anything else, and let them guess why I am not at all concerned.
My attorney would however be advise as well.