You are truly faced with a moral dilemma. To be ethical about this, first it is important to understand your responsibility. Officers of corporations (and certain other, legally identified representatives) have a responsibility to understand the legal implications of the type of actions you are being asked to perform. It is a personal responsibility with personal legal implications. So, first and foremost, you need to understand if you are under a personal obligation to understand the legal ramifications of your actions.
Also, if your boss has been this straightforward about his intent to copy their work, it is unlikely any conversation with him will be productive in convincing him of the immorality of the request. He is probably aware of this and, for reasons unknown to you, is not concerned. It could be because he is immoral, but also it could be that he has a legal basis for the actions that is not clear to you. And there are some cases where disclosing such information to non-officers or other people has other legal implications (especially if he has confidential knowledge of how this could impact negotiations or development of other products).
If you are personally responsible, then it is important to have a clear conversation with your boss about how the company intends to protect you personally for these actions. While it may seem to you that you are doing something illegal, there is also a concept in both law and the real world of "inspiration" - many artistic and engineering ideas are inspired by the study of previous achievements and/or failures of others. To closely study an example in order to create your own version is legal and encouraged by law and society in general. To say that a musician "inspired your work" is giving credit to a new creation that another influenced without having legal claims on the new work.
If you are not personally responsible for these actions, then you should likewise be aware that although the actions you are taking might sound like an attempt to "copy" an original work, it is not your responsibility to make that determination. It may sound like some kind of means of stealing another person's idea, however the ability to actually copy complex processes and systems accurately is difficult to begin with. Most software engineers are eager to be creative along the way, and therefore significantly deviate from the original work. Also, copying is very difficult to accomplish even when you have dedicated engineers. To make an analogy, there are very few artists that are capable of replicating important art works, even if given the proper incentives to do so. With abstract works, like a software process, this is even more difficult.
So, even if you are asked to try to copy this product, you should make your boss aware that you (and/or your team) is unlikely to succeed to the extent that he is asking because it is a lot to ask of any team. Although, this also means that in your attempt to copy the work, you may actually improve upon it. However, even with blueprints, screenshots and other "confidential" materials available, you should at least warn him that they may still have proprietary knowledge that is not available to you, which may lead to your ultimate failure to "copy" it. This should simply be a fair warning, and not implied message that you are interested in sabotaging his request. You must be careful to communicate that his request is simply much more difficult than it sounds.
Last, consider that you can defend yourself in another way - the more you try to deeply understand the inner workings of this system, the more it is possible the vendor will become suspicious of your motives. Additionally, it seems that it will be possible for them to have a mountain of evidence available to them of this breach of confidence, if your team is "successful" in copying their system. Emails that request information and/or verify their process can provide them sufficient evidence to mount a compelling legal case. Then you can rest easy knowing that if a breach of confidence occurred, the communications will allow for an appropriate legal decision.
NOTE: This is not legal advice, and I'm not a lawyer. I just would hope to provide a perspective that will help you feel better about whatever course of action you take.