They need to fire the lawyer that advised them to send out the cease and desist letter. After he paid for the donuts they were his to sell, eat or give away. Any first year law student would know that.
If he was using their trademark they HAD to shut him down. Tons of jurisprudence already in place. Trademark holders are forced to aggressively defend their IP or risk losing it. The lawyer was right. They were right. But now they can “come to an agreement” and their trademark is defended for the next time.
Your first year law student would be wrong and that's why he should stay in college.
As another poster mentioned, ticket scalping is illegal in most states and there is no difference between the tickets and these donuts.
Considering the quantities he is selling at an elevated price, he is in essence operating a small KK franchise without permission from the KK corporation.....