It may have cost them a few Euros to write the form email, but it's a pre-formatted email which is likely sent to all who claim for delays as cancellations from the UK/Germany. Thus, costs close to nothing to send and likely makes most go their merry way.
For whatever reason, OP didn't complete his profile, so we don't know whether he's a resident of the UK, but if he is, this is a fairly simple claim under MCOL. He will need to carefully follow the processes outlined, but they are all outlined and the form for a "letter before action" is supplied. If OP is not a UK resident, he may still use the small claims process, just a bit clunkier.
The carrier is free to respond to the MCOL claim as it has to OP and the matter will then be transferred for a hearing at which a judge may determine whether the ECJ's ruling as to Type 3 flights, applies to Type 1 as well. More likely, it will simply pay up and note that it disagrees with the claim, but is paying to avoid the costs of litigation.
While I happen to be someone who does believes that the ECJ overstepped the intent of EC 261/2004, having done so, I don't believe that it drew a distinction between Type 1, 2 and 3 flights.