iPhone iLegal

Apple's announcement of the iPhone may have topped the list of tech news stories last week but the fact that they were immediately sued by Cisco has followed close behind. On January 10th , the day after Apple CEO Steve Jobs announced the iPhone by name, Cisco filed suit in U.S. District Court, and asked for an injunction that would prevent Apple from using the name iPhone in connection with its latest product. Cisco's case is based on the fact that the name 'iPhone' has been trademarked since 1996, and not by Apple. The name originally belonged to InfoGear, a company bought by Cisco in 2000; at that time rights to the name were legally transferred. Furthermore, Cisco already sells and supports a product bearing the iPhone name.

Though the general public may have been surprised to hear that the name iPhone was owned by Cisco, Apple was not. Cisco general counsel Mark Chandler says that Apple began making inquiries about the iPhone name as far back as 2001, and that his company had, "negotiated in good faith with every intention to reach a reasonable agreement with Apple by which we would share the iPhone brand." Negotiations ended the night before Apple's announcement. Chandler is quoted in the San Francisco Chronicle as saying, "We had just one issue left . . . One niche, ancillary issue that was resolvable with one conversation." That the issue was not money is made perfectly clear on Cisco's blog, where Chandler wrote on Wednesday, "What were the issues at the table that kept us from an agreement? Was it money? No. Was it a royalty on every Apple phone? No. Was it an exchange for Cisco products or services? No. Fundamentally we wanted an open approach. We hoped our products could interoperate in the future."

Despite the fact that Apple crossed a line and stepped onto dangerously thin legal ice, they are, as would be expected, forging ahead. The Financial Times says they were told by an Apple spokesman that, "Cisco’s trademark lawsuit is silly," and "if Cisco wants to challenge us we’re confident we will prevail." Apple's spokesman also referred to Cisco's claims as "tenuous," however, this term is probably more aptly applied to Apple's legal standing. There are various cases Apple may try to make in its defense, none of them as strong as they should be.

The Financial Times reports that, "According to one theory, Apple could argue that it has the right to use the name iPhone because it is part of a 'natural progression' of products belonging to a single product 'family'." That family being the one in which the iMac, iPod, and iTunes are the iPhone's siblings. Charles Golvin, a tech analyst at Forrester Research, sees this point and remarks that the name iPhone, "has been associated with Apple and the concept of a phone for a couple of years." Similarly, though the little 'i' is not the property of Apple, the company does have a string of products which begin with it and could argue that another company's use of the prefix would lead to consumer confusion. In an article dedicated to Apple's possible legal courses, CNET notes, "The most famous example of this strategy is used by McDonalds, which has successfully argued that any other company that attached 'Mc' to their product, like a McPhone, is creating consumer confusion." However, there are numerous other companies preceding their names or products with 'i', making Apple's 'family' and 'natural progression' claims relatively weak.

The strongest legal avenue for Apple to travel on may be the fact that the two products, though sharing characteristics other than just their name, operate on different platforms. Cisco's iPhone is used for VoIP and does not work over a cellular network, therefore, it may be argued, it is a distinctly different product. Apple's use of the sentence in a statement issued on January 11th, "We're the first company ever to use iPhone for a cell phone," may hint that company is heading in this direction. On this CNET refers to David Radack, chair of the intellectual property department at the Pittsburgh law firm Eckert Seamans Cherin & Mellott, saying, "No one is going to call Delta Faucet looking for a round-trip ticket from San Francisco to New York, so two companies can use the same trademark if they don't confuse the other's customer." Though somewhat illuminating, the analogy does not hold up. "The argument that Cisco and Apple are in totally different channels of trade, akin to 'Delta faucets and Delta airlines' may not fly because they are both players in hand-held digital electronic devices," says Deborah A. Basile, a trademark attorney at the Massachusetts law firm, Doherty, Wallace, Pillsbury, and Murphy. "The United States Patent and Trademark Office identifies goods and services in certain classes. Class 9 is the broad class which includes all portable hand-held digital electronic devices such as ipods, cell phones, pda's, blackberries, all software and accessories for such electronic devices. Both Apple's and Cisco's phones fall into this class."

Making any route Apple takes challenging is the fact that they went ahead fully aware that the chosen name was trademarked by a product with, at the very least, striking similarities. By doing so and developing a huge hype around the launch, Apple created what is known legally as 'reverse confusion.' CNET again refers to David Radack when they state, "Given the sheer volume of iPhone coverage and that Apple is better known among average consumers than Cisco, people might assume that Cisco is ripping off Apple's iPhone with its family of VoIP phones." This could leave Apple open to claims of damages by Cisco.

Whether due to the enormity of the excitement around the iPhone, or the image of Apple and its CEO, it seems almost unimaginable that something could go wrong with the newest in cool. But it has and is not likely to go away; Cisco is not new to the arena; a simple cease and desist order, if Apple had the legal ability to present one, would not be enough. Analysts and legal scholars believe this battle could in fact escalate. Though outcomes are hard to predict, the most likely one is a settlement, Cisco will get a little something, and Apple will get what they already have, a phone with lots of buzz.

A more complete version of this posting, with journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Northern Light's Telecommunications & Equipment Market Intelligence Center.

And in the following articles:

How Apple Could Fight Cisco
CNET, January 12, 2007
There are a few avenues that Apple can pursue in defending itself against Cisco's lawsuit. However, no matter what the company does, it is treading uphill because Cisco has a registered trademark with the U.S. Patent and Trademark Office, according to lawyers interviewed Thursday. "As a federal trademark holder, there are certain presumptions," said Grace Han Stanton, a trademark lawyer with Perkins Coie in Seattle.

iPhone Talks Failed over ‘Open’ Stance
Financial Times, January 11, 2007
Cisco Systems’ efforts to negotiate an agreement with Apple over the use of the iPhone name fell apart because the networking group insisted that Apple’s new mobile handset be made to interoperate with its own networking devices, according to a statement by Cisco’s top lawyer.

Cisco Sues Apple over iPhone Trademark
USA Today, January 11, 2007
When Apple CEO Steve Jobs unveiled the much-hyped iPhone this week, he left one detail hanging: the rights to the iPhone name. Network equipment giant Cisco Systems owns the trademark. Wednesday, Cisco sued Apple in U.S. District Court, asking for an injunction against its Silicon Valley neighbor.

Apple Introduces Innovative Cellphone
New York Times, January 10, 2007
With characteristic showmanship, Steven P. Jobs introduced Apple’s long-awaited entry into the cellphone world Tuesday, pronouncing it an achievement on a par with the Macintosh and the iPod. Apple’s goal, Mr. Jobs said, was to translate the Macintosh computer’s ease of operation into the phone realm. “We want to make it so easy to use that everyone can use it,” he said. And he was clearly betting on translating Apple’s success with the iPod music player to a hot category of multifunction devices.

Linksys, Not Apple, Unveils New 'iPhone'
BusinessWeek Online, December 19, 2006
The iPhone has arrived, but it's not made by Apple Computer Inc., which was widely rumored to be working a cell phone-iPod combination of the same name. Linksys, a division of Cisco Systems Inc. that makes networking equipment for the home and small businesses, unveiled the new line of Internet-enabled phones this week.