On January 9, 2007, Apple Inc. CEO Steve Jobs announced Apple’s a newest product; the iPhone. The announcement, which was accompanied by great fanfare and publicity, disclosed Apple’s plan for a touch-screen controlled cellular phone with music storage, Web surfing, and email capabilities. The next day, Cisco Systems Inc. sued Apple Inc. for infringement of its registered IPHONE trademark.

Cisco’s registration had issued in November 1999 and was based on use dating back to 1997. Cisco’s iPhones allow users to transmit digital voice data while accessing music, photos, and live video streams from Internet sources. Apple’s product launch and use of the iPhone mark came as no surprise to Cisco. The two companies are said to have been in private negotiations for Apple’s right to use the mark as early as 2001. According to statements released by Cisco management, further negotiations for a deal regarding the interoperability of a range of Cisco and Apple products broke down the night before Apple’s iPhone launch.

To succeed in the suit, Cisco must demonstrate that it is entitled to the iPhone mark and that Apple’s adoption of iPhone will cause a likelihood of confusion. As owner of a trademark registration with the USPTO, a registration that is now “incontestable,” Cisco is entitled to the presumption of ownership of a valid mark, a protection that Apple would have the burden to overcome by establishing prior use or Cisco’s abandonment of the mark, for example. As a result, Apple has been pilloried in the press for its apparent lack of trademark acumen. However, despite the presumption, Cisco’s case is not the simple slam-dunk winner the press may have suggested.

In its complaint, Cisco alleges that Apple’s use is “a willful and malicious violation” of Cisco’s trademark rights and is seeking damages, attorney’s fees, and an accounting of profits derived from alleged illegal use of the mark. The complaint further petitions the court for both preliminary and injunctive relief from all use of the iPhone trademark. However, in spite of Cisco’s vocal press releases regarding Apple’s impermissible use of the mark, Cisco may face some difficulty in establishing all required proofs for a preliminary injunction to suspend Apple’s use pending resolution of the case. First, Cisco may not be able to establish the “likelihood of success on the merits” given the potential strength of Apple’s available defenses. Second, Cisco may have trouble proving immediate “irreparable harm” in light of the long negotiations.

One underlying question in this case, fundamental to trademark law principles, is which party is equitably entitled to ownership and use of a mark so that the likelihood of confusion in the mind of the consumer is avoided. In this respect, despite Cisco’s registration, Apple may have strong arguments.

Apple may try to use what has been referred to as the “McDefense” strategy. Apple may argue that it has a preemptive claim to any “i”-prefixed marks based on its ownership of registrations such as iPod, iTunes, iMac, iWork and iLife. It would argue that consumers would assume that any new “i-prefix” mark in its field originates with Apple. To consider such an argument, a court would have to determine such factors as: distinctiveness of the common “i” component, strength and amount of advertising and promotion, and the number of registered or unregistered related marks owned by other parties. In the end, the “i” component of the mark may be too generic to establish ownership by any one party, and no one of the aforementioned factors seems persuasive enough to guarantee success of this defense. However, there seems to be little room to dispute that Apple’s iPod product has made a name for the computer giant that has struck a powerful chord with consumers worldwide.

Another argument made, at least in Apple’s press releases, is that Cisco effectively “abandoned” its rights in its mark, both by failing to act against third-party infringers and by failing to actively maintain a line of products using the mark. Despite a federal registration, an owner of a mark can lose its rights by failing to (1) use the mark in commerce for a period of time or (2) enforce its rights against others.

A more difficult argument is whether Apple can establish that its cell phone is substantially different from the Internet-based class of devices employed by Cisco. If the court determines that the two products are so distinct, such that the same mark could be used without likelihood of confusion by Cisco consumers, the two iPhone products could potentially co-exist. This defense is given particular weight because Cisco’s registration for the iPhone mark is limited to goods and services directed toward “computer hardware and software for providing integrated telephone communication with computerized global information networks.” Though both products are telecommunication devices, the real question is whether the Apple product or consumer base is sufficiently different that consumers would not be confused. To put the issue succinctly: are voiceover- Internet protocol devices different enough from cell phones?

Update

On February 21, Apple and Cisco each issued press releases stating that they had resolved their dispute regarding the “iPhone” trademark and that, as a result, both companies were free to use the “iPhone” trademark on their products throughout the world. The companies also agreed to dismiss all legal actions and to explore opportunities for interoperability in certain areas. Other terms of the agreement were not released. But trademark disputes are often settled on the basis that each party will restrict its use of a particular mark to specified, and non-confusingly similar, products, which appears to be the case here. Without seeing the settlement agreement in full and without knowing all of the underlying facts, it is difficult to draw lessons from this situation, except to point out that the owner of a trademark, even if federally registered, may have limits on the scope of its enforcement rights, both because of the nature of the mark itself and based on its own conduct or lack thereof.