domain name registered by someone else - what can we do about it?

As Mr. Wasserstrom stated, there are arbitration procedures through ICANN for dealing with that and a federal cause of action in the U.S., however, your likelihood of success depends on certain key facts. One, you have to have a valid, distinctive mark with rights or a registration in the mark that precedes the registration of the domain name. Two, the registration of that domain name has to have been in "bad faith." Three, the registrant has no valid reason for registering the domain name (i.e. no business with that name or no other rationale for that name). It sounds like you have two and three and you were on your way to establishing trademark rights. If the mark is not descriptive or generic, you might have a case. You could also file a lawsuit for stealing a trade secret which would be reinforced if there was a nondisclosure agreement with the departed person that he/she may have violated.
You should contact an intellectual property attorney ASAP to review your options. Chances are that this person will respond to a cease and desist letter from an attorney and probably capitulate, unless this departed person is independently wealthy and willing to go to court when you sue him/her. But since that will cost you a fair amount of money as well, you likely may end up settling with this person for some modest amount or something he wants from you.

Alex Butterman is a trademark attorney with Staas& Halsey LLP (http://www.staasandhalsey.com), a Washington, D.C. IP boutique law firm. Alex is admitted to the bars of Washington, D.C., New York and New Jersey but, unless otherwise specified, the answer is intended to be general enough to apply to any U.S. state and based primarily upon his knowledge and experience with applicable federal laws.

The opinions expressed are those of the author and do not necessarily reflect the views of his firm, Avvo or other attorneys. This answer is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship or obligations are established herein, although consulting an attorney to discuss your specific situation is strongly recommended. This is especially true of trademark law because TM law is so fact-specific and full of esoteric nuances and exceptions that could easily result in a critical legal error without proper advice from experienced trademark counsel.