Let's be clear: Microsoft is not only within its rights but is pretty well compelled to defend its name. Under US law, if you let one potential infringement slide you lose the ability to defend against any. Where the company went wrong was in treating a teenager like a con artist: it may be backing down now, but the damage has been done.
Take IBM, a company currently in receipt of oceans of goodwill due to its active espousal of open software. It's currently being a friendly bear, but a bear nonetheless with a long a history of defending its intellectual property with ursine determination -- and, in the days when it owned the world, no shortage of unreasonableness. It still has one of the world's largest legal departments, and expertise in defending intellectual property second to none. Yet it knows better than to marmalise all pretenders: these days, it does reasonable too.
While IBM's internal policies regarding litigation are not something the company ever discusses, rumour has it that the company's response to a threat is regulated by the amount of money involved. Turf up to Big Blue with a claim of, say, $25,000, and the chances are good that you'll get a cheque by return -- oh, and an agreement that you will never again even think of typing the letters I,B and M in that order. Try it for $1,000,000 and you'll be looking at the lapels of some very expensive tailoring as it explains to you why you don't want to do that. (Just to add spice to the game, apparently, one in every so many of the $25,000 and under claims is picked at random and thrown to the lawyers, just to keep them in fighting trim. Bear that in mind.)