Cisco Systems sues Apple Inc. over use of iPhone name

SAN FRANCISCO -- Cisco Systems sued Apple Inc. in federal court Wednesday, saying the computer maker's new iPhone violates its trademark.

The lawsuit, filed in San Francisco federal court, came just a day after Apple chief executive Steve Jobs unveiled the Apple iPhone in dramatic fashion at a trade show in San Francisco.

But even while Jobs was trumpeting the product during his keynote address to Apple faithful, the matter of the product's naming had not been resolved behind the scenes between two of the biggest names in Silicon Valley.

San Jose-based Cisco, the world's largest network-equipment maker, has owned the trademark on the name "iPhone" since 2000, when it acquired InfoGear Technology Corp., which originally registered the name.

And in the spring of last year, Cisco's Linksys division put the trademark to use and began shipping an Internet phone called "iPhone" that uses the increasingly popular Voice over Internet Protocol, or VoIP. The product was officially launched three weeks ago.

Cisco said Apple had approached the company a number of times over the past few years about a licensing agreement to use the name, and that the talks heated up in the past few weeks.

However, Cisco said communication between the companies ceased Monday, and even while Jobs was holding court at the Macworld Conference and Expo, Apple lawyers had not signed and returned the final contract.

It was at that conference that Jobs introduced Apple's own iPhone, a "game-changing" touch-screen-controlled cell phone device that plays music, surfs the Web and delivers voicemail and e-mail. The product still needs FCC approval.

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 counsel.

Apple argues it's entitled to use the name iPhone because the products are materially different.

Apple spokeswoman Natalie Kerris called Cisco's lawsuit "silly" and said there are already several other companies using the name iPhone for VoIP products.

"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 -- 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 -- 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 -- 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 62 cents to $96.38 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 7 cents to $28.75.

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AP Business Writer Rachel Konrad contributed to this report.