Apple CEO Steve Jobs should use his new iPhone to call a good trademark lawyer according to several attorneys and IT analysts regarding Apple's decision to call its new combination mobile phone, iPod and internet communications device an 'iPhone', even though that name is a registered trademark held by Cisco Systems Inc.
Apple negotiated with Cisco for two years to use the iPhone name, which would dovetail with its existing iPod, iMac and iTunes product-naming convention. Those negotiations continued right until Tuesday, when Jobs stood on the stage and announced the June release of Apple's iPhone.
Cisco subsidiary Linksys has its own iPhone. But instead of signing a proposed contract submitted Monday night by Cisco, Apple made the iPhone announcement without a deal in place. Cisco's response: a 24-page trademark infringement lawsuit against Apple.
"It looks like Cisco and Apple were negotiating for quite a while, and at the last minute Apple pulled away and went on with Jobs' presentation," said Ken Dort, an attorney at McGuireWoods.
The legal fight could offer challenges for both sides, he said. "Apple contends that the products are materially different, so there would be no confusion," Dort said. While a judge would apply a series of legal tests to make such a determination, Dort said he would probably disagree with Apple's contention. "They're close enough and have a fair chance of convergence over time."
While the iPhone is a mobile phone, iPod and internet device in one, Cisco has been selling a line of iPhone mobile phone products under its Linksys brand since early last year, according to the company.
On the other hand, Apple has had so much commercial success with its 'i' series of products — from the iBook, iPod, iTunes to the iSight and iMac — that the company may have some strength in court using such an argument, Dort said.
Cisco has owned the iPhone trademark since 2000, but it hadn't really used the name until last year, he said. Cisco said it obtained the iPhone trademark after acquiring InfoGear Technology, which sold standalone devices to access the internet without a computer. The original iPhone trademark filing by InfoGear dates back to 20 March 1996, according to Cisco.
One other legal issue stands in the way for both companies, according to Dort. Under US trademark law, a trademark must be renewed every five years. But Cisco didn't file a renewal for the iPhone name within the official five-year time frame. Instead, Cisco filed its renewal application last May, only 12 days before a six-month grace period would have expired.
"The upshot of all that is that Apple may be preparing a defense that Cisco effectively abandoned the trademark years ago," and that the registration should be cancelled, Dort said.
Another technology lawyer, Diana McKenzie at Neal, Gerber & Eisenberg, said Apple has "made their negotiations a million times worse for themselves" for any future talks with Cisco. "It's the classic mistake; lawyers are constantly saying 'don't put yourself in a position where you have no leverage. The only thing good here is that this reinforces the product name in the marketplace if they can end up getting it.
"Somebody was really not thinking," McKenzie said. "It's such a big mistake" to use a name that you don't already have legal rights to use. "Any lawyer would tell you: don't do it."
Behnam Dayanim, an attorney at Paul, Hastings, Janofsky & Walker in Los Angeles, said it was "reckless of Apple to publicly announce a name under that kind of context. Even if Apple thinks Cisco has forfeited its rights to the trademark in some way, it shows questionable judgment. My impression is that Apple has been extremely aggressive in promoting its i-brands. This could be another example of trying to bowl through the situation no matter what."
Henry Sneath, an attorney at Picadio Sneath Miller & Norton in Pittsburgh, said that trademark law is a "very murky, complicated, very fact-specific law" that gives great discretion to judges, based upon such factors as whether trademark issues create confusion in the marketplace for consumers. "Cisco will have to prove likelihood of confusion," Sneath said.
Apple probably has legal defences that will make its actions seem more reasonable, Sneath said, such as claims against the validity of the original trademark. But for Apple, a large penalty looms if the court eventually rules against it — penalties for willfully infringing on a trademark can be tripled, and the court can order payment of full legal fees for the plaintiff, he said.
"It will be a big, expensive lawsuit," Sneath said.
Jack Gold, an analyst at J. Gold Associates, said he believes Cisco will prevail because it has clearly been selling products with the iPhone name for a long time. "Cisco has a VoIP product that they have sold for several years, and one is the iPhone, a VoIP-based phone system, " he said. "Cisco was trying to reach an agreement with Apple for some time over the name and thought they had an agreement, but apparently they did not."
Apple's decision to use the name anyway "is a sign of arrogance on Apple's part, since they knew about" Cisco's use of the name, Gold said. "Apple just thinks that because they are Apple they can do anything they want."
"Of course, Cisco is going to defend itself," he said. "Cisco has as many, if not more, lawyers than Apple does. I would bet when push comes to shove, with Cisco's established brand, they are going to win. I can't see them losing. I can't see how Apple could persevere."
Rob Enderle, an analyst at the Enderle Group, said Cisco "clearly owned" the iPhone name. "Any name search would have showed that. Cisco is monied and stubborn, Apple is monied and stubborn," Enderle said. "I think there's a pretty good chance Cisco could prevail here. It looks like someone is just saying, 'Hey, we don't want to follow the rules.' "
In a courtroom, that may not be the best attitude to have, he said. "There's a good chance the judge will have a Cisco-based phone sitting on his desk. It's one of those cases where it could get ugly fast."
The Cisco lawsuit alleges that Apple infringed on its iPhone trademark and that with its Tuesday announcement Apple is unfairly competing with Cisco. The lawsuit is seeking a jury trial and unspecified monetary damages.
Cisco spokesman John Noh said on Thursday that Cisco believed that Jobs' announcement of the Apple iPhone at Macworld meant that the company agreed to the terms set out in their negotiations and had signed and approved the contracts. "At that time, we were still expecting them to send over an approved agreement," Noh said. Instead, Cisco learned that Apple didn't sign the deal and made the announcement anyway, he said.
Apple spokesman Steve Dowling did not return several phone messages on Thursday.