If Tenyu signed an agreement not to teach his senei's art then his sensei should sue his ass.
If his sensei doesn't then the matter should be dropped.
So there are no ethics involved here beyond what might have been agreed to in a legal contract? Well, I don't agree with that - I rather like George Sensei's opinion - but okay, let's think about that.
If I was a programmer who worked for, say, Google, for 2-3 years, then left to start my own search engine website using 99% similar code I named 'Oogled' I should not be surprised when the Google legal department fell on me like a ton of bricks, no matter what was signed or not. In that case Google would have a reason to spend a chunk of money to stop me, even if they had no hope of recovering damages. Also, they have very deep pockets so the legal costs wouldn't really matter to them.
In this instance Read Sensei would likely spend thousands (or more) on the suit since no lawyer would take this on unless the defendant has a pile of money to go after. And even if he won the defendant could just change the name again (aikibo-ryu, anyone?) and the cycle would start again.
In this case I think that the 'old style' of intellectual property protection would be much more effective - I like the Jeet Kun Do teachers' solution.
Personally I have done quite a bit of business on a handshake. It demands trust on both sides - it is a different type of obligation than that of student/teacher, but just as strong.