Give caving to their demands a serious thought for a minute- have a disinterested party (or two) look over any agreements you've signed and the motion for injunction. If they don't completely take your side, odds are you're going to lose at trial because you can't convince a jury. At that point you'd be right where you would be if you caved, only two years older with nothing to show for it and a great deal poorer.
This needs to be a cold, calculated financial decision on your part. Even if you're right and exonerated, does pursuing your product (versus some other product) pay enough to justify the additional costs?
To argue the matter on the principles is a privilege of the wealthy.