I'm based in the UK so I shouldn't really comment on US law -- but I'm intrigued that a supplier suggests you can only sue them in their home state.
The fact of downloaded goods suggests to me that the transaction could arguably be said to have occurred in California and thus be under you local courts.
Under UK law I have issued proceeding in London against a firm 200 miles away in northern England and the defendant claimed he could transfer the case to his locality, but as it was a mail order transaction (and thus delivery was in London) I think he backed off and it was heard in London. Of course we don't have a Federal system of Government so no local laws.
I think I would speak to the supplier's local Better Business Bureau anyway because (based solely on your story) it sounds like highly unreasonable business conduct.
I've been having problems with Arrow ECS / Alternative Technologies and was wondering if others have seen the same issues. Some time ago we purchased product from Alttech and they "shipped" the product via download. We were then invoiced for the purchase two times. This happened twice and ever since we have been trying to get a refund for the double billings. This past Tuesday I received an email from Alttech's Inside Sales Manager - Western Region where he stated that they were not going to process a refund and I was free to sue them for it if I desired, so long as it is in Arapahoe County CO. We are a small company located in CA so they know we won't pursue it.
At this point I don't know how to proceed and am looking for my $10,000 refund. Any suggestions?