I recently received an infringement notice as well ... but in my case it was legit :-/ as I had a design with a dozen, or so, people who died last year. I knew it was IP violation. I created it to mark what a loss 2016 had been, not as something to profit from the fame of a particular person. Regardless, I'm not surprised it got a notice. After that, I took it down from my other sites as well.
The point of all ^that blather ... the notice included the trademark registration number. Did yours include anything useful like that? Of course, TM and C are different things. That said, in order to sue over copyright, they must register the copyright. To be clear as mud, one need not be registered to be protected ... just to enforce it in court, which pretty much comes to the same thing if you ask me.
https://www.etsy.com/legal/ip-counter
"If, within 10 business days of our receipt of your counter notice, the party who submitted the initial copyright claim doesn't inform us of an action seeking a court order against you, the material specified in the counter notice may be reactivated. Reactivating the material before this time may result in account termination."
There is no copyright mark on their art.
You did not use their original art, or even recreate it. Your design is the same general idea, but an entirely different artistic representation of it.
By my (massively imperfect) understanding of IP law, they cannot copyright the idea of such a design. If it were a trademark, they might be able to get a TM--but then it would be their brand identity, not just another design.
I doubt that they have, or could obtain, a copyright on that design, or would want to pay the fee to copyright all their stuff. [media]https://www.copyright.gov/circs/circ04.pdf[/media]
In order to take action in court, they MUST have a registered copyright (per my IMPERFECT understanding).
So unless they already have registered copyright for that art, they won't be able to get it within the 10 days and file anything in court, and Etsy will dismiss their claim.
I think this is a frivolous claim on their part to harass the competition ... or they are just ignorant of IP law and have a vastly overdeveloped sense of their own originality.
^Take that for what it is worth (not much). Please do let us know what happens.