Honestly, @niftyled, you got off lucky here. Yeah, your business's reputation is probably ruined within the community it serves, and there's a chance at losing a big contract with a major pinball manufacturer (if that partnership is even true), but at least that game didn't sell on eBay. Could you imagine the entangled web of legality you'd be in caught up in if you had gone through with that, with little to no warning, documentation or some sort of following the letter of the law?
I say you should be thanking your lucky stars the game was not sold off. I believe in CA, the value of selling stolen goods over $950 constitutes a felony. Whether or not this fits the case of 'stolen goods' is TBD by the courts. I for one wouldn't want to be anywhere near something like that. Not a great way to kick off 2018...
Merry Christmas.
P.S. - all troubling behavior aside, kudos to you guys for finding a middle ground and coming to terms. It's nice to see it eventually go down like that.