NATO is indeed a registered trademark for watchbands.
However, I suspect that registration is invalid in view of the generic usage that is widespread and he fact that NATO is a world famous organization. Yet, it is presumed valid until cancelled.
International Watchman also has NATO-GT10 registered for watchbands.
International Watchman also has NATO registered for a wide variety of clothing.
I think your modified designation is a generic usage that should be legal, but I think in view of the registration for NATO-G10 you will likely have to defend your use in court, and that will cost a bunch of money which you will not recover and which you may not be able to afford.
eBay is right in not doing research. That is how the DMCA works. You just need to file a counternotice, which will give your identifying information so he can sue you if he wants. My guess is he will sue you if you don't stop.
Will he take you to court? Not likely if he is well advised. But, that depends on strategic considerations for which you need to consult a trademark litigation attorney.
Is your case valid. Probably. But are you willing to spend the money on this when all that results is you open the term up for all your competition.
The winning move is most likely to get a trademark attorney and work some sort of license with International Watchman so its registrations keep other unlicensed parties at eBay at bay. Call one for a free consultation.
See the link below for useful trademark information.
I am not your lawyer and you are not my client. Free advice here is without recourse and any reliance thereupon is at your sole risk. This is done without compensation as a free public service. I am licensed in IL, MO, TX and I am a Reg. Pat. Atty. so advice in any other jurisdiction is strictly general advice and should be confirmed with an attorney licensed in that jurisdiction.
I suggest meeting with a trademark attorney prior to filing a counterclaim. Everything said in the counterclaim can be used against you in a law suit. And this seems like a tap dance for Nato style business where your opposition is legal steps ahead of you.
I am not clear on whether your use in commcerce pre-dated the vendor's filing for trademark, and even less clear that the vendor's use did not predate your use, even if he did not register the mark.
Note: eBay does not have time nor resources to research the validity of each claim and counterclaim, which is why they simply ban people who cause them headaches.
Seek counsel, most offer a free initial consultation.
My disclaimer is simply that Avvo already has an adequate disclaimer.
I disagree with the prior posters. If your products are genuinely from NATO use, i.e. these are used products you've obtained and are reselling on eBay, then you are engaging in what's called "nominative fair use" of the trademark. The guy has no claim against you for that. It'd be like Toyota suing a used car dealership for advertising a Toyota car for sale. I do agree with the other posters that you should consult with an attorney, though. My good friend Michael Geoffroy is in your area, I believe, and I'd recommend you speak with him to start with.