Trademark infringement - does it really sounds that bad?

Ok, I want to know your opinions on my situation. Ideally I'd like examples and outcomes..

I have company registered as IBATT and domain name was also available (spent tons of time finding this one). We are in a beta stage with our software. As you guess there is a lot invested into marketing materials, advertisement, etc (a lot to me)

1 week ago I filed for Trademark registration of my logo and name. Today I got certified letter from XYZ saying I'm doing very similar to what they do and they own BAT trademark. They say 2 letters "B" and letter "I" doesn't make difference and people will confuse my product with them potentially causing damages, etc.

BAT is their product name and this product has nothing to do with my product. In fact - I may integrate with them at some point.. They do have competitive product also - but names not even close.

My lawyer thinks that they don't have strong case. But we are (me and XYZ) in completely different weight categories. I can afford letter but there is no way I can afford lawsuit. I will try to send them a letter but want to know if someone had similar experience and what was an outcome. I need to consider if I should continue advertisements or I should look for different name.

Also, should I rename company and get different domain name or just renaming product will do?

I knew about BAT, in fact everyone knows about it in this industry. But I never even though it is similar. IBATT pronounced and look very different from BAT.. Logos different.

On one hand - I'd like to keep name if possible since it is easy to remember but OTOH right now it's not too bad time to get rid of it. But what is the guarantee that I won't "copy" other name?

Sometimes when a company sends a C&D letter like the one you got they are willing to fight hard to get you to stop and sometimes they are not willing to fight hard but are hoping you will get scared and run away. That is the nature of the game, and the only way to find out is to play the game for a bit.

You seem to be willing to spend a little money on this, so you could have your attorney send them back a strongly worded letter saying that they have no case and that they should go jump in a lake. They could (1) back down, (2) threaten to sue, or (3) actually sue you.

If (1) happens, then you might be able to keep your name. If (2) or (3) happens, then you'll probably want to give up. Even if (3) happens, you would likely not have to pay much in attorneys fees as long as you gave up quickly. See what your attorney says about this.

You said: "...I may integrate with them at some point.. They do have competitive product... " There's the money shot. If you plan to integrate with them, they're likely to have a good case against you. Even if you hadn't mentioned that (too late now), the fact that the products could potentially be integrated seems like there is a potential for confusion and dilution of brand.

If it was me, I would re-brand and avoid the headache, although YMMV, IMHO, IANAL, etc.