Tell the collection agency what happened (better yet, put it in writing), stating your case, and telling them you will not pay them anything. Inform them to stop contacting you about it, and to pursue a court date if they so desire, that you'll be happy to meet them in court.
The law, under the Fair Debt Collection Practices Act[=http//www.ftc.gov/os/statutes/fdcpa/fdcpact.htm]Fair Debt Collection Practices Act
, says that once you are contacted and informed of the debt, you can ask them to stop continuously contacting you -- they then must either drop it or take you to court.
[quotede2b642af9="Fair Debt Collection Practices Act"]§ 806. Harassment or abuse [15 USC 1692d]
A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section
(1) The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person.
(2) The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.
(3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 603(f) or 604(3)1 of this Act.
(4) The advertisement for sale of any debt to coerce payment of the debt.
[bde2b642af9](5) Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.[/bde2b642af9]
(6) Except as provided in section 804, the placement of telephone calls without meaningful disclosure of the caller's identity.[/quotede2b642af9]
99% of the time, especially when it's for something as trivial as this and you have your documentation well established that you are in the right, the collection agency will drop it.
Do this in writing, as professionally as you can (if you're not good at writing business correspondence, ask someone to help you). But be firm and assert your rights as a consumer under the Fair Debt Collection Practices Act. They bank on the fact that most consumers, not knowing their rights under the law, will cave to intimidation and threats.
Of course if you do owe a legitimate debt of any size, I don't recommend you do this, because they may very well call your bluff and go to court -- it costs them little to file a small claims case against you. A judgement against you in court is a worse blemish on your credit report than a settlement out of court. But if you know you're in the right, in a case like this with a shady vendor who is known far and wide for ripping people off like this, you won't have a problem.