SAN FRANCISCO - Apple Inc.'s much-ballyhooed iPhone was unveiled this week
after 30 months and millions of dollars in top-secret development. But the sleek
new iPod-cellular phone combination could wind up costing the company a lot
Cisco Systems Inc., the world's largest networking equipment maker, sued
Apple in San Francisco federal court on Wednesday, claiming that Apple's iPhone
violates its trademark.
Cisco is asking the court to forbid Apple from using the name "iPhone," which
Cisco has held a trademark on since 2000 and used to brand a line of its own
Internet-enabled phones that began shipping last spring and officially launched
three weeks ago.
Cisco said Apple approached the company several years ago seeking to use the
name, and the two Silicon Valley tech giants have been negotiating ever since to
hammer out a licensing agreement.
But Cisco said the talks broke down just hours before Apple's chief
executive, Steve Jobs, took to the stage Tuesday at the annual Macworld
Conference and Expo to introduce the multimedia device.
Apple's iPhone is a touch-screen-controlled cell phone device that plays
music, surfs the Web and delivers voicemail and e-mail. The product still needs
While Jobs was holding court in front of thousands of Apple devotees, Cisco
had given Apple lawyers until the end of the business day to finalize the
The deadline came and went, and Cisco filed the lawsuit Wednesday seeking
injunctive relief to prevent Apple from copying Cisco's iPhone trademark.
"We certainly expected that since they had gone ahead and announced a product
without receiving permission to use the brand, that meant that the negotiation
was concluded," said Mark Chandler, Cisco senior vice president and general
Apple argues it's entitled to use the name iPhone because the products are
Apple spokeswoman Natalie Kerris called Cisco's lawsuit "silly" and said
there are already several other companies using the name iPhone for products
like Cisco's that use the increasingly popular Voice over Internet Protocol, or
"We believe that Cisco's U.S. trademark registration is tenuous at best," she
said. "Apple's the first company to use the iPhone name for a cell phone. And if
Cisco wants to challenge us on it, we're very confident we will prevail."
Cisco executives argue that, despite the current dissimilarities between the
Cisco and Apple iPhone, both phones could take on new features or work on
different networks than they do today.
Erik Suppiger, networking specialist at Pacific Growth Equities, said that
argument is sound in an era of "convergence," when the Internet is increasingly
used as a telephone network.
"I'd envision that Cisco would be inclined to add cellular functionality to
its iPhone. I would not be surprised to see them add additional memory for
supporting whatever media functions you might want, either ¡ª they'd be logical
extensions," Suppiger said. "The phones may not overlap right now, but they
would over the foreseeable future."
The lawsuit may be more than just a semantic scuffle.
Cisco has been on an aggressive acquisition binge in the past year, and CEO
John Chambers has been ambitious about building the company's brand name and
producing more consumer electronics ¡ª not just the esoteric networking gear that
chief information officers purchased at great expense.
The lawsuit could be an attempt to embroil Apple into a legal morass because
Cisco is set on developing a competing product, said Eve Griliches, program
manager at Framingham, Mass.-based research firm IDC.
"Cisco is a very, very smart company, and anything they can do to slow Apple
out of the gate might give them an advantage at the negotiating table,"
Griliches said. "Chances are both companies knew this lawsuit was going to
happen ¡ª the real question is, what's really behind it?"
But not everyone agrees that the lawsuit is strategic or even productive for
Cisco, the most richly valued company in Silicon Valley with a market
capitalization of more than $174 billion.
"Bottom line is that you'd think Cisco had a better use of its time and money
than suing Apple over a word," said Samuel Wilson, analyst at JMP Securities.
Before the lawsuit was announced, Apple's shares closed up $4.43 to $97
during regular trading on the Nasdaq Stock Market. Apple shares fell 40 cents to
$96.60 in after-hours trading.
Cisco's shares closed up 21 cents to $28.68 on the Nasdaq Stock Market. In
after-hours trading, Cisco shares gained 9 cents to $28.77.