While trying to track down the source of a recent traffic drop on Google I discovered in Webmaster Tools that a single site has over 2 million links to us. This is a PR2 scraper site in Japan than we have nothing to do with, but according to Google they make up 94% of our total backlinks.
I'm on the fence on how to deal with this. My first reaction would be to attempt to shut them down by first contacting them, then blocking their IP, using the disavow tool, DMCA and a spam report if necessary. However, the thought of 94% of our back links disappearing over night in Google's eyes is a bit concerning.
Are these links potentially harmful to our rankings post Panda/Penguin? Is the concern about removing the links potentially doing more harm a valid one? How should we handle this?