Supposedly there is some sort of kill switch functionality in the iOS app store, and I haven't heard about copyright infringement to the level of taking someone else's game and redistributing it before. In my mind, the best case scenario is to refund everyone's money and take the game off the market, uninstalling from computers. The only backlash you receive is the press about the kill switch functionality and the whole "dude, where's my game" moments that people will have.
Oh, there's certainly a kill switch. Jobs admitted to it during an interview, but it hasn't been used. The closest App Store comparison is probably Abuse (source code released into public domain, http://en.wikipedia.org/wiki/Abuse_(video_game) ):
Long story short, Eurocenter did not have the right to use the sound effects, registered levels (levels 5 and up), or the Abuse trademark in their game "Alien Abuse".
So very similar circumstances. And the original app was never killswitched.
the apps get removed (you can't download them anymore), but anyone who has downloaded it can still use their copy.