Yes, you have the option to ignore the email and wait for the suit, and TGHEN get a lawyer. I assume they can show they at one time used the mark in commerce or somehow got registered in the USPTO. The rule is NOT that as soon as you stop using a mark it is a free for all for others to use it. Under federal law there is a presumption of abandonment after three years of non-use, but even then the registrant can say “but I am planning to use it again once the economy gets stronger” or whatever. Common law most places is reasonably similar.
If I were you I would get thee to a lawyer, now. One near you and experienced in TM law. Do a confidential consult on all the facts—and for goodness sakes do not put more facts here by which to hang you—and then some well grounded advice.
Do NOT personally respond to these folks or you will bollix it.
Licensed in Maryland with offices in Maryland and Oregon. Information here is general, does not create a lawyer-client relationship, and is not a substitute for consulting with an experienced attorney on the specifics of your situation.
I agree with this advice. I would add that an experienced attorney can look at a variety of options. You indicated that they have never sold under the name. If that is the case, and the competitor did not use the name in commerce, or as a mark, then the mark may be the subject of a cancellation proceeding. However, there a defense of excusable non-use. You'll want to more investigating to better understand the facts, potential defenses, and the chances of success.
I do question if you already signed something. This could have unintentially waived your rights in some fashion.
Lots of people claim (and believe they have) marks that are not subject to protection. It is worth evaluating. I can tell you from experience, some lawyers write a quick cease and desist letter for a good client without understanding trademark law (as a favor for the client or for a small fee). Just because you got a letter does not mean there is a viable claim out there.
Lack of commercial use of a trademark is grounds to defeat a trademark claim. Also, they need to use the mark continuously. If they don't have continuous commercial use, the trademark maybe viewed as abandoned. If this company sues, as a junior user of the contested mark, you have a strong defense.
Your first option, and that of anyone in your situation, should always be to never automatically assume the other company has a valid trademark right against your use of the mark, even if they show you a registration. You seem to have eventually got on the right track by questioning the validity of their use of the mark. What you should have done, and what I would plead others do in the future, is to immediately consult a trademark attorney when you receive any sort of take down notice.