I figure, o.k. my mistake and anyway, as their site wasn't competitive, it would be my site benefiting theirs in any confusion, so why put anymore effort into that site. So I agreed to take it down and walk away.
That done, they contact me to say thanks! and by the way do I want to sell them the domain name and if so for how much!
I don't want to expose myself to a "bad faith" legal action, but would like a chance to recover something from the whole mess.
Any advice on how to proceed?
If the later, I would not have taken the site down, but you are just too nice. :)
You are no longer competing against them, but by taking your site down you also made them stronger - you acknowledged that there is a direct competition, and they are in the right.
How much could you have made in one year? Maybe that sounds as a good starting point. Better yet, how much would it have cost them and you in legal fees to fight it out?
Maybe you could tell them you are not interested in selling only the domain name, but you would be willing to sell the entire "business" which, by the way, would include the domain name.
Spell it out in the form of a disclaimer that says "this is not an offer to sell a domain name, as defined by blah-blah-blah..."
re: selling the business, I have already re-branded and put it up on a new domain, so if I sold the old business wouldn't we both suffer from duplicate content?
