Sometimes those that dispute trade marks are willing to enter to a coexistence agreement where both parties agree to stay off the other's turf (so to speak). You could suggest that.
On the issue of incorporation, you need to remember that you have to transfer all of your assets (e.g. your tm and trading contracts) into the company and that incorporation wont eliminate the risk of being sued for use of the tm up to the point of transfer. However, once the company is incorporated then it does limit your exposure and perhaps it is something you should be thinking about in the long run.