I have a good friend who owns and runs a chain of music stores. The stores teach music lessons and sells: music books, guitars, keyboards, drums, and accessories. There is another store in the town that had been there for a long time. Strangely enough the owner of that store is the husband of a good friend of my mother. When the son of the other store owner took over, he started bad mouthing my friend. My friend took the higher road, he also refused to sell pianos and organs because the other store was known as "The Organ Center". To make a long story short, I knew BOTH sides of the story, my friend was also my guitar teacher, my boss (I worked there teaching guitar for almost 8 years) and the fellow who sung at my wedding. The other shop owner was a family friend as well. In the end, the high road worked - my friend is still in business and the other fellow is out of business.
It's never a fun situation but since:
a) you're already on the high road
b) you're already gaining momentum
c) your competition is clearly being deviant in order to gain business
I truly wouldn't worry about it. Stay on the track that you are on and be as exceedingly nice as you can towards your competitor. Even offer to do joint shoots where your two styles could complement each other. You'll never gain a customer by bad mouthing your competition, all you will get is a reputation that you don't want.
Best of luck!