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Battle Over iPhone Carries Risks for Both Apple and Cisco

The battle between Apple and Cisco Systems over use of the iPhone name carries risks for both tech giants.

Cisco, 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 has attached to a series of phones and communications devices, reported CNBC's Jim Goldman. A Cisco line of Internet-enabled phones 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.

"Apple has come to us numerous times over the last five years seeking rights to the name and acknowledging that they should be coming to us for that," Mark Chandler, Cisco senior vice president and general counsel said on CNBC's "Squawk on the Street." "We've been in intensive discussions with them the last few weeks actually trying to come up with an arrangement where the name could be shared. We're disappointed that didn't work out, but at the end of the day we have to take action to make sure our names don't get used without our permission."

Cisco even refers in its complaint to the United States District Court for the Northern District of California to a "surreptitious effort" by Apple to obtain rights to the name "iPhone." The complaint says an entity called Ocean Telecom Services filed an Intent to Use application for the name iPhone in September of last year. "Upon information and belief, Ocean Telecom Services LLC is owned or otherwise controlled by Apple and is the alter ego of Apple," the complaint says.

Talks Broke Down

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 FCC approval.

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 contract.

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," Chandler said.

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

Calls Lawsuit "Silly"

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 VoIP.

"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."

More Than Semantics

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.

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