Sadly this is exactly the reason why the patent system is broken in the US. You appear to have prior art that is in the public domain, two things that alone wo

Sadly this is exactly the reason why the patent system is broken in the US. You appear to have prior art that is in the public domain, two things that alone would mean that the patent should never have been granted in the first place. As you have said lawyers are expensive, but in the interim all correspondence you have should refer time and again to your prior art and the fact that it was in the public domain. The main reason for this is that you are framing the argument should it ever get to court, not them. One other thing you could add now is a counter-claim, as in, "if they wish to continue along this line of C&D you will apply for invalidation on the basis of existing evidence widely available on the internet". Finally you should offer a resolution to the dispute, based on the evidence of prior art you will be happy to accept an on-going licence fee paid to you as a settlement and that youy would be happy to meet with them to discuss the details. The sum should not be outrageous, but something "reasonable" and affordable. In this way you demonstrate that you are making an effort to be reasonable.