Once you create a product/project that is in some ways similar to that of a former employer, you have entered potential conflict-of-interest territory. If you can afford the time and legal expenses to argue that it is not a conflict of interest, that's fine. If you cannot, then you should think twice about what you are doing.

Should it be that way? The answer is a definitive maybe. Part of the reason why the legal system exists is to resolve disputes like this. The real problem is the cost and time involved make it mean that both parties rarely have equal access to it, and that it is often used as a heavy handed threat by those who know they have better access to it (with the end result being to silence people rather than seek a just resolution).

As for the personalities of the parties involved, that has nothing to do with it. You can be the biggest jerk in the world and be right, or the kindest person in the world and be wrong.