A competitor filed a patent application (it's public now). We offer the same feature but added it to our products after the application date. We found prior art that will kill the patent. The prior art is a live example from 2007 of the exact feature, the competitor is trying to patent. What should we do to make sure the competitor will not sue us in the future? Should we approach the competitor and offer not to kill the patent and in return they will not sue us (to gain an advantage on other competitors)?
Since you do not have a duty to disclose prior art to the USPTO, you could approach your competitor and try to negotiate a license for their patent pending technology. However, there are two caveats to this approach.
First, your competitor does have a duty to disclose prior art to the USPTO. If they learn about the prior art in the course of negotiations with them for a license, they would need to disclose that prior art to the USPTO if the patent has not yet issued. The patent could be declared invalid if they later sued an infringer and it came out during litigation that they did not disclose known prior art.
Second, it is much easier to notify the USPTO of this prior art while the patent is pending than after the patent issues. You would only have to pay $180 and would have six months after the application was published to file the prior art with the USPTO (under the new rules of 37 CFR 1.290). The USPTO will only consider written documents, so there would need to be some kind of published document relating to the prior art you found, such as a company brochure showing or describing the feature.
I would be happy to assist you with this matter whether you decide to negotiate with your competitor or submit the prior art to the USPTO.