Apple and Cisco have settled their dispute by reaching an agreement in which both companies promise to share the controversial iPhone brand. The problem began when Apple announced in January that its new phone would be launched within months. Based on the successful iPod, which plays music and videos, the new product would be called iPhone.

iPhone was a brand name that Cisco had already registered in 2000.  After Apple jumped into the mobile phone market, the dispute continued for a month, until Apple and Cisco made a joint declaration confirming that they had reached an agreement to share the iPhone name. This will permit both companies to apply it to products they sell around the world. The agreement also stated that the two companies will explore the opportunity to collaborate in areas involving security and communications for both consumers and corporations. The other conditions of the deal were not revealed. The agreement was sealed only weeks after Apple had also signed an agreement with Apple Corp., the music brand used by the Beatles.

“This settlement agreement between Cisco and Apple in connection with the iPhone trademark provides an illustration of a case where fully enforcing and litigating trademark rights would not necessarily have resulted in the most efficient business outcome for both parties,” notes Andrea M. Matwyshyn, adjunct professor of law at the University of Florida. Matwyshyn, who will be joining the Wharton faculty this summer, sums up the situation this way: “Cisco and Apple chose to release their legal claims against each other and agreed to work together in the areas of security and consumer and institutional communications. They appear to have turned their reactive legal dispute into a proactive mutual business opportunity.”  


The agreement involves a concession on the part of Apple, which in principle had resisted appeals to make the iPhone compatible with the hardware made by other companies. For a long time, Apple has preferred closed, patented systems that require its customers to use Apple hardware and software. Customers who purchase music online at the Apple (iTunes) store, for example, cannot listen to it on any other player but their iPod.


Two Markets Converging


With this agreement, the two companies announced that they had put an end to all lawsuits related to this case. Cisco had presented a suit intended to prevent Apple from using the iPhone name shortly after Apple CEO Steve Jobs revealed the mobile phone last January at a trade show.


Cisco, the world’s largest manufacturer of data network equipment, had earlier begun to market its own line of iPhone telephones for the Internet, using the brand name that it had acquired seven years earlier. “Cisco sued Apple because, although the two brands are currently operating in different markets, Cisco felt that the two markets would converge in the future,” says Francesco Domenico Sandulli, professor at the Complutense University in Madrid.


Many experts argue that there is only a remote possibility that the two markets will converge. Nevertheless, for Sandulli, “The appearance of such wireless networks as the FON community in Spain, which involves such IP telephone investors as Skype as well as such communities of mobile Internet users as Berggi, awakened the suspicion that the convergence of the cell phone marketplace and the voice-over-IP market is neither impossible nor very far away.”


The agreement means that the two companies will have new business opportunities worth pursuing. According to Sandulli, for Apple, the pact will mean “access to knowledge and knowledge of numerous Cisco patents in the realm of network technology and infrastructure. Meanwhile, for Cisco, thanks to the important presence of Apple brands, this opens the door to the consumer market, which has been a thorn in its side until now.”


Avoiding Confusion among Consumers


Nevertheless, in sharing the same brand, the companies must be on the lookout for certain kinds of risks. “The first problem is that, if there isn’t a common strategy for products covered under the umbrella of the iPhone brand, when people speak of the two telephone devices, it could create confusion among consumers,” which is what Cisco was prepared to argue in its suit, says Sandulli. “If you start with the idea that the companies share a brand but do not share a strategy for marketing their products, the company that has a lesser known brand and which invests less in its brand will derive more benefits from sharing the brand with the other company,” he adds.


Ricardo Pérez, director of the master’s program in telecom and digital management at the Instituto de Empresa in Madrid, does not agree that consumers are the ones who are hurt the most. As a result of this deal, “The Cisco applications are very much aimed at the consumer market and to Voice-over-IP products. They are products that substitute for our traditional telephone with another device that uses the Internet infrastructure to improve communications capacity both in terms of cost and quality,” he notes, adding that both companies have correctly managed information but created a fair amount of confusion. “The whole world knows now that the products exist, and that two big companies are fighting for the name. But in reality, the advantages of all this free publicity have been so great that no one has any vested interest in fighting.”


The Benefits of Sharing

Beyond such problems, sharing a brand is replete with benefits for both companies. Experts agree that the two companies will take advantage of synergies as well as their partner’s potential. According to Sandulli, “If they ultimately decide to integrate their products in such a way that the Apple iPhone is converted into a voice-over-IP telephone tool, then they will be able to take advantage of important synergies and savings in the investments needed to promote the iPhone brand.”


Pérez believes that Apple will derive significant benefits. “The company will be able to use a brand name that it would otherwise not be able to use. This is also going to give continuity to a family of products that have not only changed our vision of the future, but which have invented a new industry from the ground up, uniting entertainment and mobility as never before, and forever associating the concept of style with consumer technology.”


Cisco will derive equal benefits from the agreement. For Cisco, Perez, says this “provides publicity for a line of products that would never have received so much attention, no matter how much the market division could manage. It has also enables Cisco to move into a market that it has, until now, been attacking through applications that are more oriented to the home. If Cisco collaborates totally with Apple to create compatible products, it could put the company [Cisco] in a great position to take advantage of Apple’s success.” However, Pérez also believes that this will be hard to achieve. “Apple is launching products that use its Macs to manage the entire realm of home entertainment. In this area, Apple will be entering the terrain of KISS [Technology], a Cisco acquisition that integrates the storage and reproduction of high quality digital media,” he says.


The competition between Apple and Cisco will become more complicated, predicts Pérez. Apple, he says, struck the most triumphant blow. “In its first try, it succeeded in achieving something that others had been trying for years to achieve. It impressed the market with its vision of a fusion of functionality, design and features in a mobile device for the next generation of users.” All of these things were available, hear adds, but they were not available together in one device. “For Cisco, this is a magnificent opportunity to demonstrate to the consumer market that it has also entered this battle, and that it is here to stay.”


Risks and benefits, lawsuits resolved and new synergies: It remains to be seen what will happen in the future. What is clear already is that Apple has converted the iPhone, whose name recalls its iTunes and iPod products, into one of its main commitments for the future. So much so that Cisco wanted to conclude a friendly agreement.


For its part, Cisco began last spring to manufacture a line of iPhones in its Linksys division, which has owned the iPhone brand name for the past seven years, ever since it acquired InfoGear Technology, the company that first registered that name as a trademark.