You could be right, 'cuz I don't know the legality of "selling an mp3 player that looks like that mp3 player some other guy sells" and certainly not in Australia. However, I mean the use of the legal system as intimidation instead of arbitration, which is what happened here.
You can be sued if your product looks too much like another product that has, in part, been trademarked or otherwise protected. You can also be sued for "passing off" under some trade practices laws.
If you look at the pictures, they look very similar indeed to the Major Manufacturer's product. In their position I'd do the same thing.
IANAL, TINLA, and in particular I never got around to studying this area of law.
You have to have a design patent to protect the "shape" of a product. They look a little like iPod nanos, but can Apple really protect ANY small rectangular metal music player?
