So...I am trying very hard to wrap my head around this idea that suing him would somehow have been a kinder, gentler way to handle the situation.
WotC literally did one of the things that you are suggesting: they just talked to him. For whatever reasons, he was not responding to other attempts to communicate, so they sent investigators who literally put him on the phone with WotC, after which the situation was resolved without any lawsuits, and with him even getting product that WotC did not owe him.
This is a guy who somehow came up with their IP and was leaking it to the internet, but they took him at his (eventual) word, gave him a pat on the head, and a nice stack of magic cards. Yet they are the villains here because "the Pinkertons." This does not make any ethical sense to me at all.
Edit: WotC did not create this situation. This guy somehow got his hands on their IP, and was immediately trying to monetize it. They treated him with kid gloves. He is not a victim.