I don't believe this story one bit. Germans were fanatical and the pilot would have been shot for treason. Perhaps he didn't have any more bullets, met the other guy and decided to say that he spared him. Either way I smell bs.
Believe it or not there was more to the German war machine than blood thirsty crazy ass SS. I don't think you appreciate the history of chivalry on the European battlefield either. Germans, while known for the racism of the period, did consider English and Americans to be more like equals. In the beginning of WWI both sides were giving the others dead pilots burials with full honors. Serving in the air was seen as gallant and was seen as an elite occupation.
I wasn't familiar with this story, but I did see a show about a German ace, Egon something, who ripped a Jug to pieces, disabling it's steering, then flew alongside to gesture to the pilot to bail. The American pilot couldn't really, also couldn't bail out as the canopy was damaged. The German pilot thought the American as being defiant as resigned himself to chew up his opponent some more and end the encounter. IIRC he expended the rest of his ammo at close range only to have the Jug maintain it heading and speed. He waved goodbye and left shaking his head. The show was about the sturdiness of the Jugs design I think, but the pilot involved was taking turns narrating.