Is your product patented or copywrited? If so, you could stop them under those types of protections. Otherwise, you may need to do the usual stuff that most other businesses face. Make your product better in some way. Provide better customer service. Up your game. Make them regret taking you on as competition. They may be able to beat you with a lower price, but you can beat them in other ways, such as quality.
find a way to expose them as copycats. create a blog post or if you don't have a blog, make one, because any promotion is good promotion so basically they are somehow promoting your products. use this in your advantage
ROFL, law suits can cost a substantial amount of money, and there is no guarantee that your lawsuit will yield any ROI as a result of the lawsuit. You have to ask yourself before considering a lawsuit "Is my company big enough that an attorney would even take my case?" These type of lawsuits are not contingent based, which means you may have to pay your atty upfront.... If you were some joe blow site suing me, then I will wait until you run out money, which can happen right off the bat. If a company such as Microsoft was suing me, then I would certainly be concerned, and I would comply as fast as I could before I go broke.... Do not make threats of a lawsuits unless you can truly back up those claims, otherwise, I will think you are just another pissy person blowing smoke... (and most do just that, blow smoke...) and I would also bet, most avg joe sites do not start copyright claims, as they would be the ones defending themselves from big sites that can actually afford going through the legal process until they own everything you have.... (assuming you have anything at all....) the avg joe site/person simply can not afford to sue anyone.... (it is not always what you can prove, it is how much money you have to win, and even if you do win, collecting your reward is a complete new ball game, and it will cost even more trying to collect which is another process...) (assuming the other party even has anything to collect...)
Make sure that you keep your customer service standards very high and encourage your customers to tell other about your business. Maybe add some customer testimonials to your website?