I wouldn't panic just yet. A few years ago I found a competitor using a picture I took in his printed advertisement. I was pissed, called him, and he claimed he knew nothing about it. He paid someone to make his tri fold advertisement. He probably didn't know anything about it.
I had an attorney write him a nastygram, and he quit using it immediately and got rid of his tri-folds adverts ( I as hoping he would make me an offer as it was a pretty generic picture ) and stopped using them immediately.
My combined brain trust of fellow contractors decided I may have been impugned, and needed compensation for my work. My attorney laughed at first, then saw that I was serious.
According to him, there was NO actionable offense since the offender removed all content immediately from public view and company use after notification. According to him, this fell into the *whoops* category, and was further substantiated by the fact that my image disappeared from use by him immediately and not used again.
Then of course, the question was asked by him: how can I prove how much money I lost because of the use of my intellectual property by someone else? What can I prove? How would I prove it?
So yes, the law was broken. But I was assured by more than one source this was a "no harm, no foul" situation since there was immediate compliance with the demand for removal.
So how would the photographer's watchdog prove what they lost? How could they develop that cost? More importantly, is there a website or other source that sells that exact picture so they could easily prove that the intent of the photo was to be a commodity for sale, and not just a picture? If you didn't snipe it off the steel mill's website, I can't imagine how they could develop any kind of credible dollar value to take to court.
I have been sued several times. I am a little more trusting of the court system than I used to be, and try to use common sense when I respond. I used to panic, but no more. If it were me, I would ask the guys to point you to the site that sold that pic (if there is one) and pay for it immediately. That not only kicks the chair out from under the watchdog group, but would show a judge that you performed immediately with honest intent after notification of infringement.
If that didn't work, I would wait until things heated up a bit. My attorney's favorite phrase is "sue to settle". No one can file and litigate a court case for $900 bucks. Not even in small claims court. If they wanted to pursue the issue after the image is removed, I would simply wait until the water was boiling and offer them $100.
Besides, if you go to court, think of a judge sitting on the bench looking at their attorney saying "you want what? He took the image down in 24 hours after you notified him and you still want money? Is that image commonly for sale at a site for $900? Is the sale price for the image how you came up with that figure? Was the picture labeled so he would know it wasn't public domain? If not, how do you substantiate this case?"
Having been to small claims court many times with friends (never for my stuff... mine is bigger!) I have never seen a judge grant anything to someone that can't substantiate their loss. Never. Sure, there are a lot of bonehead judges out there, and NO DOUBT someone here knows of some huge legal injustice that sticks in their mind.
I would say stay calm, and see what develops. Don't ignore their communications, but don't offer to pay for anything. Just ask where the picture is actually for sale and let it drop. Pay for the picture if possible, and see how it goes. Imagine you telling them in your communication to them -
Thank you for thoughtful notification informing me that we had inadvertently published an image that was copyrighted. As I expressed to your company earlier, it was not my intent use the work of someone else in an illegal fashion. We had absolutely no knowledge that they image was not public domain. There were no labels on the picture, no notes of authorship on the picture or in its file name, nor watermarks on the image. The picture was removed from my website immediately after your notification.
And of course, it would be great to add:
We have since secured the rights for that exact picture, and have paid for its use. You can verify that your client was made whole by examining this receipt (embed it in your email).
We are sorry for this misunderstanding and would like to apologize for any harm we may have caused you or your client. Thank you for your time and assistance in resolving this matter.
Sounds good to me!
Robert (bent there, done that... more than once)