This is a great example of standing up for yourself while emphasizing the mutual interest of both parties. As this letter helps demonstrate, sometimes reacting with humor and kindness is the best way to deal posturing.
Well first this was a letter allegedly (Blank doesn't fully verify, he says, "he claimed was my response" which as I pointed out in my other post is a little strange) sent to Gates and the use of humor is somewhat patronizing. Not the mention the fact that if you are hoping for Gates to call off his legal dogs (and once again I don't know the relationship between Gates and Blank) using humor could very well not be the correct way to do it. Because it make someone (probably not Gates of course) feel stupid.
Let's say for example a well know internet industry person decides to write to PG about something going on at a company that he just picked for a YC class. PG thinks his organization is picking winners. And now you write him a letter essentially saying "the children you put in charge at Babbozify are ..." (and insert something you think shows they have no clue). How is PG going to feel? How would the average person feel about this? People don't want to be told people they put trust in are doing stupid things. And if you do this you have to be very careful to show concern and not be belittling.