updated 2/22/2007 12:29:21 AM ET 2007-02-22T05:29:21

Cisco Systems Inc. and Apple Inc. said Wednesday they have settled the trademark-infringement lawsuit that threatened to derail Apple’s use of the “iPhone” name for its much-hyped new iPod-cellular phone gadget.

The companies said Apple will be allowed to use the name for its sleek new multimedia device in exchange for exploring wide-ranging “interoperability” between the companies’ products in the areas of security, consumer and business communications.

No other details of the agreement were released, and representatives from both companies declined to comment beyond their short joint statement.

The companies both said they would dismiss any pending legal actions regarding the trademark.

The showdown between the Silicon Valley tech heavyweights erupted last month when Cisco sued Apple in San Francisco federal court claiming that Apple’s use of the iPhone name constituted a “willful and malicious” violation of a trademark that Cisco has owned since 2000.

Cisco’s Linksys division has been using the trademark since last spring on a line of phones that make free long-distance calls over the Internet using a technology called Voice over Internet Protocol, or VoIP.

The lawsuit was filed a day after Apple Chief Executive Steve Jobs unveiled his own company’s iPhone, a multimedia device that operates over the cellular network instead of the Internet.

Apple initially called the lawsuit “silly” and argued that it was entitled to use the name because the phones operate over different networks and would not compete with each other.

Cisco maintained that in an era of “convergence” — where increasingly intelligent networks and devices can handle a variety of different types of voice, video, data and other transmissions — the two companies’ phones could eventually take on different features and wind up competing head-to-head.

The result would be “confusion, mistake and deception among consumers,” according to the lawsuit.

Negotiations between the companies broke down just hours before Jobs’ dramatic unveiling of the product Jan. 9 in San Francisco.

The sticking point apparently was Cisco’s demand that in order to use the iPhone name, Apple would have to open up its famously closed products to communicate with some of Cisco’s offerings.

Neither company would discuss what future products might come from the collaboration. But analysts said the deal could help both companies strengthen their positions in the increasingly fierce battle to deliver video and other applications through the network directly to consumers’ homes.

Zeus Kerravala, a network infrastructure analyst with Yankee Group, said there are ample opportunities for the companies to dream up collaborative projects to win over consumers.

One possibility, he said, could be the creation of a Linksys device that users call into to record podcasts that are then automatically uploaded to iTunes, which would make the creation and dissemination of such programs easier.

However, he cautioned that both companies need to be willing to share in order to make the partnership work.

“If the two actually can work together, then the combination of the two is obviously more powerful than the two butting heads,” he said. “There’s no company out there that understands network service like Cisco. And you could argue no other company understands user experience like Apple.”

The dispute highlights the shifting business strategies for both companies.

Cisco, which is Silicon Valley’s most richly valued company with a market capitalization of $166 billion, makes most of its money by selling the routers and switches that direct data traffic over computer networks.

However, the San Jose-based company is also making an aggressive push into the consumer market and toward products that help deliver content, such as cable set-top boxes, wireless broadband routers for the home, and equipment for playing digital music.

Cupertino-based Apple is also expanding its business range from beyond primarily a Macintosh computer and software maker as it capitalizes on the demand for digital music and the soaring popularity of its iTunes and iPod products.

Legal experts said Cisco’s argument that the phones could eventually compete seemed like an unlikely scenario. They added that the products and markets they serve are currently so dissimilar there’s little likelihood of future trademark tangles.

“Although Cisco is making the point that we don’t know what the future brings, it just strikes me that their markets are plenty distinct, and there’s probably room for them to find peaceful cooperation,” said James Pooley, an intellectual property litigator and adjunct law professor at the University of California at Berkeley. “They’re not naturally going to be stepping on each other’s toes very much, so cooperation makes a whole lot of sense.”

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