Trademark infringement requires a finding of likelihood of confusion between the marks. This depends on a number of different factors, only one of which is the similarity of the marks. Other factors include the relatedness of the goods or services, the marketing channels, the degree of purchaser care, any evidence of actual confusion, etc.
As for your question of trademark "variations," courts have found infringement in cases such as Purolator, Inc. v. EFRA Distributors, Inc., 524 F.Supp. 471 (D.P.R. 1981), where "Puro Filter" was held to be an infringement of the "Purolator" trademark. If you have received a cease-and-desist letter, you should consult with a trademark attorney to assess the specific facts of your case. This response is for general informational purposes only, and is not intended to create an attorney-client relationship.
Trademark rules exist to help keep consumers' choices clear, as well as to help protect the investment in branding products or servvices. Your query is the detail that the devil is often in, and a source of many Avvo questions. How much can you have to change something before it's not infringement? Ask yourself what a reasonable consumer would think, going online, if that's where you market to your customers, and looking for their company - would they find your company? Would they be able to tell the difference?
If you've based your company's brand of good and services on variations of a TM that someone else owns, they could rightly feel that you've muddied the market with your variations of their TM and have "diluted" their brand, besides luring away their customers.
As my colleague aptly noted, the similarity of products or services and marketing channels also adds to the directness of the competition and likelihood of consumer mistakes.
These TM infringement questions require a case-by-case, trademark-by-allegedly-infringing-trademark analysis, so see an IP lawyer to review the situation you're in and help you respond to this cease and desist letter.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.
I agree with my colleagues, but wish to add that you should inquire with your IP attorney about whether you are actually using the phrase as a trademark. Simply putting something on the front of a t-shirt may not always be considered sufficient to serve as a source-identifier for consumers.
Disclaimer: The above statement is not intended as legal advice and is not the basis of an attorney-client relationship.
I agree with the fine comments of my colleagues but I would add the following warning. When you receive a cease and desist letter from a lawyer, chances are that means that someone who owns a trademark seriously believes either that (a) your company's use of a close varation to the trademark has already confused its customers and taken away business, or (b) your company's use of the trademark variation threatens to confuse customers in the near future. A person or company which sends a cease and desist letter has already made the careful calculation that it might have to litigate the issue with you---indeed, the recipient of a cease and desist letter could strike first by bringing a law suit which asks a court to declare that its conduct has not infringed trademark rights. Thus, in every case, a cease and desist letter should be taken seriously, since the next step can be costly litigation. Even though you might believe that most consumers would not be confused, you might be surprised about the extent of actual confusion that sometimes exists in the marketplace. You also need to make a realistic assessment of how important continued use of the trademark is to your business, and whether the trademark holder has a legitimate belief that your continued use of a similar trademark will cause it harm. You should immediately retain trademark litigation counsel, and you should attempt to promptly negotiate a resolution that avoids litigation. Litigation can be very expensive---and once you are sued for trademark infringement you may not be able to control the litigation expenses. You can ask your lawyer what a case like this costs, but most responsible lawyers will tell you that cost estimates in this field are inherently unreliable. Thus, the best solution is to negotiate a resolution of the dispute without litigation. When entering into these negotiations, you need to have realistic expectations---trademark protection can be powerful and if you infringe on someone's well-established trademark, even innocently, you can face substantial liability. Even though you may dispute whether consumers will be confused, the consequences of losing that dispute in Court can be draconian. Thus, you need to make a business calculation--is continued use of this trademark so important to your business that you are willing to invest substantial sums in legal fees and potentially lose a long and costly court battle and become liable for a large amount of damages, or is there a way to negotiate a settlement that modifies the way you use the trademark in your business so as to reduce consumer confusion, but still allows you to succeed in your business. To make that business decision, you need to consult with experienced trademark counsel to obtain a realistic assessment of your chances of success in litigation. There is no substitute in such circumstances for consulting with an experienced trademark lawyer (or maybe more than one---may companies wisely seek "second opinions" on issues such as this).