Perhaps a silly question, but is the description that they use the only description by which people can understand your product or services are related to a specific geographical region?
By that I mean, if the bully is preventing you from advertising “New Orleans Sex Toys”, can you advertise “Crescent City Sex Toys”?
There is a common human emotional reaction that opposes change, especially when the change is forced upon you - and you have had years of us before the threatened change. I assume that prior use is something that everyone at your shop is comfortable with (and is ubiquitous in your advertising).
I guess I’m suggesting you step back from ‘battle mode’ and chat with some advertising/marketing gurus to see if there is an alternative marketing strategy that could separate you from them (maybe in a more catchy way) while retaining the reference to your product/services and geographic territory associated with them.
Also, maybe take a look at their products and services and see if there’s anything they do where they have left themselves unprotected, trademark wise, so you can trademark that even if you don’t use it or intend to use it yet - but might serve as a bargaining chip on the other issue.
Caveat: I know less about this area of the law than any other lawyer on this board, so anything I say should be given the lack of Creedence it deserves