Feir Fireb and Malacat have raised several questions that I'll try to answer in this post.
1. How difficult is it to produce a superior copy? Not very for some characters- you make a Dex+Scribe Latin stress roll. 12+ produces a bonus, 5 or less produces a penalty, and botches produce a giant penalty making the book nigh worthless.
2. Is there room to share the high magic aura? Well, sorta. There is room for a bunch of ordinary sized sancta (each including living quarters and a laboratory), as well as a few shared buildings. However, it would be awfully intrusive and awkward to have a sanctum of a noncovenant member in among them. There would be enough physical room, but ordinarily sancta are not very close to each other, to avoid conflict. (For example, someone travelling within the covenant's bounds could appear to be approaching Karl's sanctum in a threatening manner, which could lead to violence.) Also, there are inherent problems with freeloading; efforts to defend the covenant would also protect Karl, and if Karl produced enemies, they might easily threaten the whole covenant. So it could be done, but it would be hard. Getting Karl to accept it might be difficult.
3. Quaesitorial powers: The role of Quaesitors and how tribunals work is covered to some extent in The Wizard's Grimoire, but don't feel any need to get that. Ordinarily, Quaesitors do not have significant authority over other magi. They are treated with respect, and they are allowed a fair amount of investigatory power (such that they can make inquiries that would otherwise be treated as invading the privacy of other magi), but the Order is essentially governed by votes of magi in councils, not by Quaesitores decreeing what hermetic law is. (Quaesitores do have some special powers during councils and especially tribunals, but that's not important right now.) So while Matteo might be able to persuade Karl to some extent by arguing that he knows what the tribunal would do, he doesn't have any power to settle the legal conflict directly. Besides, when a Quaesitor acts on his own behalf or on behalf of his covenant, he will be treated as less authoritative (and if his actions are sketchy he may draw negative attention from more senior members of his House that seek to preserve the Quaesitor reputation for impartiality).
4. So, how strong is Karl's claim anyway, and what could we do to undermine it? You clearly could set up your own covenant outside his sanctum and have a strong argument that that was legal. He might object, but since he is a lone magus who is not a member of any recognized covenant, and your tribunal forbids new covenants and is hostile to "vagrant" magi, it is all but assured that the tribunal would not uphold any claims he made that that violated his rights. On the other hand, intruding into the area that he has marked as his sanctum (the high aura area) would be very risky, unless you got a stronger claim on it (such as bribing him out of it, or winning certamen over it). He could use lethal force to defend his sanctum, and the tribunal would be unlikely to take any action against him. You could also try to dislodge him by bringing your (basically superior) claim before the tribunal, but while you would probably win, that would involve a delay and would require spending political capital that you may want to save for more important purposes. Allowing him to remain at his sanctum while settling elsewhere in the valley significantly increases the likelihood that the tribunal would recognize your claim to all of the valley except his sanctum. So you could fairly safely (legally) set up a covenant elsewhere in the valley, regardless of Karl's attitude towards it, but doing so might result in losing the best bit of the valley when a tribunal finally sorts out the conflict.
5. What does Matteo know of Karl? Not a whole lot. You know he is a young magus, not far from his gauntlet; while he may be a little more powerful than you, it's probably not by much. You think his parens's primary research interests were Animal, Herbam, and Muto. Neither he nor his parens have particularly good reputations or many allies in the Order.
6. How much is Matteo likely to help with negotiations? Some, but not a lot. Several people in the covenant have a similar (or higher) level of bargaining skill. His reputation as a Quaesitor should help some, but not very much, because this isn't really Quaesitorial business.
I think that should answer most of the questions that were out there.
Anyone else who wants to share an opinion on what to do, now's the time to do it; I plan to post the next step in this by Friday or so. Currently, Brigitta is strongly in favor of certamen; Tsaran supports trying to share the high aura area, with certamen as his preferred fallback, and bribing with LQs as a second fallback; Matteo seems to prefer bribing with LQs, and is very worried about certamen; and Celeste wants a negotiated solution (and is strongly opposed to Wizard War, which nobody is advocating). I'd really rather have more opinions so that I don't have to just toss some intrigue rolls to sort this out, but I'm going to go forward soon regardless.